How Does Today’s Mea Culpa Change the Outlook for One of America’s Fastest Growing Companies?
5/5/21 – – Peloton and the U.S. Consumer Product Safety Commission (CPSC) today announced a recall of all Peloton treadmills. Characterizing the company’s earlier push-back against CPSC’s recall recommendation “a mistake,” Peloton CEO John Foley issued this statement:
The decision to recall both products was the right thing to do for Peloton’s Members and their families. I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall the Tread+. We should have engaged more productively with them from the outset. For that, I apologize. Today’s announcement reflects our recognition that, by working closely with the CPSC, we can increase safety awareness for our Members. We believe strongly in the future of at-home connected fitness and are committed to work with the CPSC to set new industry safety standards for treadmills. We have a desire and a responsibility to be an industry leader in product safety.
Several of my blog posts have chronicled this fast-growing company’s response to issues that had the potential to explode into crises. For the most part, I have praised CEO John Foley’s responsiveness and decisive actions. While today’s apology and offer to buy back all 125,000 of the $4,200 Peloton treadmills in use are laudable, the initial decision to reject evidence of a product defect (one child died and 29 other people were injured) places the future health of the company in jeopardy.
Peloton now is by every definition in crisis mode.
I ended my March 18, 2021, blog post (“Peloton, Pedaling Ahead of Crisis, Issues Warning Regarding Its Treadmills”) with this warning of my own:
So, I am impressed with Peloton’s proactive response, with one caveat: It’s impossible to accurately grade Peloton’s strategy without knowing the details of the accident (a child died after being pulled under a Peloton treadmill). Hopefully for Peloton, its customers and its shareholders, this death was not caused by a product defect. If different facts were to come out in court, the harm to Peloton and Foley’s credibility would be devastating. The stock would fall by a lot more than 5%.
At this writing, Peloton shares are down more than 13%.