How Peloton is trying to stay ahead of supply chain issues

• A Peloton Bike became a must-have of the pandemic as people looked for ways to stay fit while staying at home.
• But that increased demand coupled with the onset of the global supply chain crisis put extra pressure on the company to get its connected fitness products to customer homes.
• Peloton has spent nearly $1 billion to improve its production and supply chain this year, including a plan to build its first U.S-based factory.

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• PTON

The extended disruptions to the global supply chain have created shortages in everything from groceries to home furnishings to toys. Peloton's bikes and treadmills are no different.

While White House press secretary Jen Psaki recently joked in a press briefing about the "tragedy of the treadmill that's delayed," supply chain snags on top of the massive uptick in demand during the pandemic have been a major issue for Peloton.

"It was certainly a problem over the last 18 months," Peloton co-founder and chief product officer Tom Cortese said about the supply chain during the CNBC Disruptor 50 Summit on Thursday. "We pulled all the levers that we can pull."

Struggling to meet demand for Peloton Bikes

A Peloton Bike became one of the hottest commodities amid the pandemic as people tried to find new ways to work out at home. While that helped the company achieve 100% total revenue growth from its 2019 to 2020 fiscal years, it also created a massive backlog of orders with some customers having to wait months for their purchase — Peloton reported that it had $230 million in backlogged orders for its products in June 2020.

That was further exacerbated by the onset of the supply chain crisis. In a letter sent to customers on Feb. 4, CEO John Foley wrote that "The global increase in shipping traffic has added significant delays to all sorts of goods coming into US ports, including Peloton products. These unpredictable delays have resulted in painful delivery reschedules for many people as Peloton Bikes, Treads, and accessories have been held at Port for upwards of five times longer than usual."

While Foley said that the company increased its manufacturing supply "more than 6x in the last 12 months," there were still delays as Peloton could not get their products to customers. That led the company to invest over $100 million in air freight and expedited ocean freight to try to improve order-to-delivery windows, an investment that it said would "dampen our near-term profitability."

"It was reported at some point, you know, we were putting bikes and treads on planes in order to be able to get them here," Cortese said of the company's wide-ranging efforts.

Investing in new U.S.-based facilities

Peloton has tried to address that issue over the last year through a more targeted approach in North America.

In December 2020, it acquired exercise equipment manufacturer Precor for $420 million, which included Precor's two U.S.-based factories. In May, Peloton announced a plan to build a $400 million factory in Ohio, the company's first U.S.-based factory. Previously, the company has had its products manufactured in Taiwan.

"We have a very robust supply chain that we've been building over the last number of years. We have a big investment in Taiwan and our partners and in our facilities, and we have great relationships with carriers," Cortese said. "And through both our investment in the state of Ohio and our new partners … we've been building out our North America production and supply chain capabilities."

Cortese said that Peloton has been "attacking this across every aspect of the supply chain with everything we've got," giving the company a more positive outlook at what's potentially ahead as supply chain woes don't seem to be fading away.

"We feel very comfortable about being able to chase this opportunity as the globe sort of settles out of this chip shortage and ocean shortage that we're seeing right now," he said.

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