- Peloton has recalled all of its treadmill products due to safety concerns.
- Retrieving the more the 400-pound machines presents a monumental logistics challenge.
- How difficult all this will be hinges on how many users decide to return their Treads.
- See more stories on Insider’s business page.
Wednesday Peloton issued a voluntary recall for its two models of treadmill, the Tread and Tread+, after one child died and 70 other injuries were connected to the machines.
Peloton Tread owners were instructed to stop using their machines and are able to return the product for a refund if they wish. But returning a treadmill that weighs, depending on the model, between 290 and 445 pounds is a very different task from the average consumer product recall.
The question looming over Peloton is how many customers will decide to return the roughly 126,000 Tread+ and Tread units sold in the US. If it faces a flood of returns, Peloton could be in for an enormous and expensive logistical challenge — on top of its very public struggles to get its products delivered to buyers in the first place.
Logistics has been a thorn in the side of the skyrocketing company for years. Even after putting time, attention, and investment into an internal delivery operation, in 2020 bikes and treadmills were still delayed — this time from farther back in the supply chain.
Peloton’s manufacturers and suppliers got tied up in the same supply chain and freight snarls that affected nearly every product at some point during the pandemic. Wait times kept climbing.
While returns won’t be delayed by the same supply chain issues, they will test the company’s internal capacity for logistics and its two major logistics contractors: J.B. Hunt and XPO Logistics.
Peloton has a pickup problem
Returning a large item like a treadmill, or a couch, is a challenge retailers are still struggling to tackle. Picking up an item weighing hundreds of pounds requires multiple workers to lift it, ample truck space to transport it and an unpredictable amount of time, since workers need access to someone’s home and the conditions like elevators, stairs and tight spaces are unpredictable. Efficiency really isn’t an option.
“Big and bulky” returns can cost between $200 and $500 each depending on the amount of time and disassembly required, according to Chris Richter. Richter is the founder of FloorFound, a startup that specializes in large-format returns for retailers.
He told Insider beyond the labor, coordinating the pickup could be just as big of a headache for all involved, depending on the delivery partner.
“Initial contact may take five days and pickup, up to two weeks. If not carefully managed this is a customer experience nightmare,” Richter said. “Peloton was already facing huge supply chain issues that are well documented. The good news is that they have invested in building their own assets for pickup and delivery,” he said, adding that they will still likely need to depend on third parties.
J.B. Hunt and XPO Logistics are both specialists in these “big and bulky” consumer deliveries.
The pandemic will also complicate the recall since Peloton paused all operations that required home entry, including return pickups, March 19, 2020. Treadmill deliveries have slowly resumed in 2021 and the company also offers a moving service for users who want to move the treadmill from one room to another for $250. The company is waving this fee due to the recall so users can move their Treads to a safer location away from children, for example.
Peloton has limited experience with returns
Peloton has been working on both its delivery supply chain and returns capability (often called reverse logistics) for the past few years. The recall will likely shift that work into high gear.
Starting in 2019 the company offered a 30-day trial which could conclude with a free pickup and refund at the end if customers didn’t want to keep the bike. In February 2020, CFO Jill Woodworth said return rates were in the single digits.
“In the coming years, I think you’re going to be interested to see that this logistics platform that we’ve built is also going to serve as a reverse logistics platform,” CEO John Foley said in September.
The company has been telegraphing a coming “certified pre-owned” program for Peloton equipment. A small pilot began in 2019. But the stagnation of that program may provide a window to the biggest open question in the recall logistics challenge: How many Tread users actually want to return the machine?
“No one is meaningfully coughing up their bikes or Treads because the churn is so low and people love the product,” Foley said in September, referring to the fledgling resale program.
In fact, when Peloton announced its new Bike+ and Tread+ models last year, it said that current users with old models could trade in their current equipment for a $700 credit toward the new models. This program logistically could look a lot like a recall, but it never caught on according to Foley.
Peloton found that a large number of customers, instead of returning their Bike and upgrading to a Bike+, simply kept their cheaper Bike and bought second Bike+, Foley said on a November earnings call.
The opportunity to refurbish and resell Peloton machines “just isn’t there until our members are willing to part with their products,” Foley said.
The recall is the first real test of Peloton’s reverse logistics operation. And no matter how many Peloton Tread owners decide to return their machines, Peloton is gearing up for returns to be a larger part of their operation going forward. The company is currently hiring four reverse logistics analyst positions in New York and California.
XPO Logistics and J.B. Hunt’s last-mile delivery segments already have the wind at their back from the pandemic-induced shift to e-commerce. XPO’s last-mile revenue, which is mostly large items, was up 22% year-over-year in the most recent quarter.
“Demand for heavy goods is still very, very strong,” CEO Brad Jacobs said on an earnings call Tuesday. And J.B. Hunt’s final mile revenue jumped 31% year over year in Q1. The Peloton recall will likely pad those players’ Q2 balance sheets more and could create opportunities for new entrants in the “big and bulky” space depending on how Peloton decides to handle the recall.
Peloton did not respond to a request for comment on the logistics behind the recall.
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