- Peloton recalled its two treadmills on Wednesday, following regulator and consumer group pressure.
- Product safety and legal experts say Peloton is likely to face lasting reputational damage.
- Others say the company is likely to prevail, thanks to its rabid fanbase and flagship bikes.
- See more stories on Insider’s business page.
Peloton is facing its second major recall in less than a year.
The company issued a voluntary recall of all treadmill models on Wednesday, after a child was fatally injured and the US Consumer Product Safety Commission found 38 other individuals were harmed in incidents involving Tread+ machines.
In a statement, Peloton said that customers who have purchased a treadmill should “immediately stop using it and contact Peloton for a full refund or other qualified remedy.” Shares of the company fell by nearly 15% by the end of trading Wednesday.
Peloton CEO John Foley apologized in a public statement for initially refusing to recall the treadmill in April. “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+,” Foley said. “We should have engaged more productively with them from the outset. For that, I apologize.”
But experts speaking to Insider believe the company can likely weather the storm because treadmills make up relatively little of Peloton’s sales — and Peloton still has a deeply passionate fanbase.
This wasn’t Peloton’s first product recall
The treadmill recall isn’t the first time Peloton has recalled one of its products. Peloton issued a recall of its PR70P clip-in pedals in October 2020, following complaints from 120 customers about pedals breaking off mid-ride.
Now, as Peloton looks to move forward and chase a projected $4 billion in sales in 2021, product safety and legal experts say the company is likely to face significant reputational damage due to its failure to act immediately after regulators pushed for a recall of its treadmill.
Kaitlin Wowak, assistant professor of IT, analytics, and operations at the University of Notre Dame’s Mendoza College of Business who specializes in recalls, said that while Peloton may have learned from its mistakes, its failure to immediately recall the treadmills is troubling.
“The fact that Peloton knew of potential safety issues about their treadmills, but didn’t act accordingly is concerning,” Wowak wrote in an email to Insider. “When federal agencies request that a company recall their product, they should do so.”
Wowak said there are several reasons why a company may choose to delay a recall, including the short-term cost, the time needed to conduct an internal report to find underlying issues, or simply a corporate culture that is averse to admitting failure.
“Some firms have a culture of being more proactive when it comes to product quality issues and others have a culture of being reactive,” she said.
Peloton’s refusal to recall the treadmill prompted action by a group of US lawmakers, who proposed a new bill last week calling for reform to existing US product safety policies. Under current legislation, regulators like the CPSC are prevented from enforcing recalls and are required to defer to the company to disclose product defects.
But the proposed Sunshine in Product Safety Act would give the CPSC the power “to communicate vital health and safety information about potentially dangerous products to consumers without risking retaliation by the manufacturer,” the legislation states.
Carl Tobias, Williams Chair in Law and a professor at the University of Richmond School of Law, said that in addition to endangering its consumers, the delay in issuing a recall may have lasting damage to Peloton’s reputation.
“Peloton could have ultimately saved itself reputational harm from all of the issues about a recall if they had worked a little more closely with the CPSC,” Tobias said. “I’m not sure that they helped themselves by being so resistant at the beginning when there seemed to be enough injury to warrant concern.”
And while issues involving Peloton’s $4,295 Tread+ have now been widely reported — with multiple cases of injury and mechanical malfunction stemming back to 2019 — the CPSC unveiled new findings on Wednesday showing problems with Tread, Peloton’s slimmer and cheaper treadmill.
Peloton’s Tread — which retails for a little more than half the price of Tread+ at $2,495 and was originally slated to come out in the US this month — has only been made widely available thus far in the UK and Canada.
According to the CPSC’s findings, there were a total of “18 reports of the touchscreen loosening and six reports of the touchscreen detaching and falling” including “reports of minor injuries such as abrasions, minor cuts, and bruises” from consumers in the UK and Canada.
The resiliency of the Peloton brand
However, industry analysts predict Peloton’s sales will remain relatively unharmed amid the public scrutiny, thanks to its loyal fanbase and the fact that a majority of its sales come from its popular stationary bicycles.
Camilla Yanushevsky, an equity analyst at CFRA Research, predicts a positive outcome for the fitness company.
“While from a PR perspective we think the voluntary recall is a few weeks late, we don’t see it materially impacting Peloton’s growth story,” Yanushevsky said. “A majority of Peloton’s hardware sales are Bike and we see multiple ways to enhance safety to Tread, like a bar under the machine.”
Likewise, analysts at Cowen also provided an optimistic future for Peloton, noting that the more-expensive Tread+ was forecasted to account for 2.2% of total sales in 2021, compared to 78% from bike sales.
In a research note Wednesday, Cowen said “the bulk of treadmill opportunity longer term will come from Peloton’s Tread model, which is priced more affordably vs the original Tread+.”
In addition, the firm believes Peloton’s lower-priced Tread model will likely avoid issues relating to objects being pulled underneath since the belt does not wrap under the machine.
Greg Castronuovo, chief operating officer at Two Nil Holdings, a global marketing services network, said that Peloton will likely be able to use vast social media following to its advantage in an effort to rebuild trust with consumers.
“From a marketing perspective, Peloton has a powerful platform across its paid, earned and owned channels to engage consumers in a conversation over safety and it’s plans going forward.”
Still, he said Peloton will have significant work ahead of itself to make up for the treadmill blunder.
“What’s important next is that they frequently keep customers updated on the fix and embrace radical transparency to regain and rebuild trust with every single customer,” Castronuovo told Insider. “The brands that overcome these types of challenges are the ones that move quickly and meaningfully to make it right.”
A good example of how passionate Peloton’s fanbase is Cary Kelly, a treadmill customer who remained a loyal user of the Tread+, even after she was severely injured while using the machine in May 2019. Upon learning of the recall on Wednesday, she told Insider she was “surprised and disappointed.”
When the recall announcement was made, she said her husband was in the middle of a workout on their Tread+. The company continued airing live Tread+ on Wednesday with no mention of the recall, though instructor Rebecca Kennedy warned users to “keep all pets and kiddos clear of that Tread” at the beginning of her 11:05 a.m. class.
Peloton did not respond to Insider’s request to comment on the recall.
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