It's been gloomy days at Peloton.
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February 15, 2022 7:01 AM EST

The first sign for about-to-be-unemployed Peloton employees came when they could not log into some work-related apps. Hours later, on a Tuesday morning last week, thousands learned they indeed were being let go.

Not so long ago, Peloton was booming. Then we blinked, seemingly, and its fortunes were plummeting just as quickly.

Last week, the company laid off 2,800 workers, 20% of its workforce. At its peak, the stock price topped $170 a share with a market capitalization around $50 billion. On Monday, Peloton’s stock closed at $32.83. Under investor pressure, CEO John Foley stepped down and installed Spotify’s former CFO, Barry McCarthy.

What went wrong, and why so quickly? Peloton made massive investments in complex manufacturing and delivery operations to meet a huge surge in orders in the early days of the pandemic–only to belatedly find demand fizzling.

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If you’re a Peloton user (confession, I am), maybe you won’t notice all these changes. Instructors are not affected by the layoff. (Although many of them already are superstar brands on their own and can easily break out if the instability continues. )

If you’re an employer (confession, I am), it’s impossible to not look at Peloton’s rapid fire turnaround and look for key lessons for what feels like an era of unrelenting turbulence and erratic consumption.

Because Peloton’s slump is all of us. Consider the release of a recent Grant Thornton survey showing a decline in optimism. Just 57% of CFOs have a positive economic outlook for the next six months, compared with 69% in the third quarter. More than half of CFOs are also bracing for negative impact from the new COVID-19 variant.

More than ever, we have to expect the unexpected.

A key lesson from Peloton is that we must build planning for uncertainty and volatility into everything we do.

One of Peloton’s biggest headaches is its supply chain; the equipment itself is heavy (a typical bike weighs 135 pounds) and manufactured overseas. While it had a big fan base pre-pandemic, the spring of 2020 brought renewed demand as gyms shuttered and workers sought refuge (and exercise) at home. Online groups were flooded with complaints over delays in orders as the company ramped up manufacturing and tried to fix delivery woes.

Faced with an enormous surge in demand, Peloton invested $100 million to speed up shipments, spending a big chunk of money on air shipping products from its Asian manufacturing facilities. “If we’re being technical about this, temporarily paying elevated air cargo rates is not exactly ‘investing in the supply chain,’ it’s just burning cash,” wrote Freight Waves, a news and data-intelligence firm for the supply chain industry. The piece was headlined “Peloton’s supply chain is broken (and $100m won’t fix it)”—and it ran a year ago.

The problem? The solution was extremely expensive, and the company lacked insight into the demand side of the equation. For that, Peloton could have talked to workers in its own warehouses, which eventually grew “so full, they resembled jigsaw puzzles, with employees trying to figure out where to stuff another bike,” Insider wrote last month.

Some of this is hardly Peloton’s fault. Who can predict the next Covid variant or related shutdowns? And so a part of safeguarding our future is to not simply create a patchwork of solutions but address the fundamental problems, such as the fragility of a global supply chain. And beyond selling the goods we need people who can look up and notice when the first signs of a problem begin to bubble. That requires deep investment in everything from the brick-and-mortar (say, roads and subways) to the virtual (data and technology, and staffing talent to plan and analyze).

Talent is everything.

Besides the supply chain, another worry unites employers: talent. In a recent PwC survey of business leaders, 77% say the most important factor to drive growth in 2022 is the ability to hire and retain talent; 48% say talent is also their biggest risk.

In the case of Peloton, several themes emerge from its hiring and firing processes. On the strength of its growth and a certain “cool” factor, the company was able to quickly scale its workforce. But last week’s bumpy communications rollout shows that less attention might have been paid to shedding workers. Remote work makes this even more difficult, as rapport among colleagues has either been interrupted or never established. And laying people off virtually allows little room for assertion or preservation of a company’s culture.

After not being able to log onto various work-related apps, employees said they woke up to news Tuesday morning about the CEO stepping down and rumors of restructuring. That morning, human resources started informing those who were part of the layoffs.

“It felt sudden, cold, and scripted—and I’m still in shock,” one field-operations employee (those are the people who deliver bikes, set them up, and demonstrate how to use them to customers) told Insider.

“When I got the call, I could tell my manager was reading off a script,” this person said. “Peloton really prides itself on transparency, but it felt like we had a total lack of information about the status of the company.”

The same pandemic that Peloton rode to unprecedented demand also did it in. In our tech-connected world, it’s very hard to keep a layoff a secret. Transparency should have been the least Peloton workers expected from their employers, particularly given that Peloton had a history of impressive leadership in this area, like its willingness to engage in difficult conversations from #BlackLivesMatter to #StopAsianHate, and its blog posts on how exercise is life-changing to challenges of homeschooling.

Peloton’s stumble also made less sense given there is decreasing stigma attached to being laid off. Taking to Twitter or LinkedIn is almost a first step, both as a form of catharsis but also as a necessary way to let people know you’re open to the next thing.

The ease of information-sharing led to another embarrassing moment for Peloton, as departing employees called into Wednesday’s all-hands meeting with the new CEO. The chat was peppered with comments like: “I’m selling all my Peloton apparel to pay my bills!!!” and “This is awfully tone deaf.”

Indeed. The meeting ultimately ended early.

This experience shows the need for companies to share more information with employees about the financial health of the business. There’s a reason employee gatherings perk up whenever leaders share budget insights, justifications for resources, or new plans and initiatives.

Peloton’s own instructors preach eloquently on the connection between mental and physical health. Emotional wellness has to be built into any layoff strategy, both for the fired workers and those remaining.

Thus, we need to plan layoffs with as much care as recruitment, onboarding, retention, and development. This is not only about the departing employees and maintaining goodwill; it is about retaining the remaining talent. Over time, transparency can also help build a workforce that is more adaptable and aware of sudden needs to pivot or learn new skills.

Because the truth is, based on the uncertainty right now, companies laying off thousands of employees might find themselves returning to the labor market in a matter of months, ready to hire again.

 

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