Peloton on Thursday said it would start charging new subscribers a one-time $95 activation fee if they bought their hardware on the aftermarket as more consumers snap up slightly used gear for a fraction of the typical retail price.
The used equipment activation fee for subscribers in the US and Canada comes as Peloton begins to see a significant increase in new members who bought used bikes or bikes from peer-to-peer marketplaces like Facebook Marketplace.
During its fiscal fourth quarter, which ended June 30, Peloton said it saw a “steady stream of paid connected fitness subscribers” buying hardware on the secondary market. The company said the sector grew 16% year-on-year.
“We believe a significant portion of these subscribers are incremental and exhibit lower net churn rates than rental subscribers,” the company said in a letter to shareholders.
“It’s also worth noting that this activation fee will be a source of additional revenue and gross profit for us, helping to support our investments in improving the physical experience of our members,” interim co-CEO Christopher Bruzzo later added on a call with analysts. .
While many Peloton subscribers are avid users of the home exercise machines, some have likened them to glorified clothes racks because so many people stop using the equipment. These people originally paid Peloton for this stuff, but importantly, many of them have canceled their monthly subscription, which is how Peloton makes most of its money.
The ability to attract new, budget-minded members from the secondary market who are willing to pay for a monthly subscription is a unique opportunity for Peloton to increase revenue at no upfront cost, in addition to the revenue from the initial sale.
Ari Kimmelfeld — whose startup Trade my stuffformerly known as Trade My Spin, sells used Peloton gear — there are an estimated one million bikes collecting dust in homes around the world that could be a source of new revenue for the company.
He told CNBC that he previously met with Peloton executives to discuss ways to work together, because every time he sells a piece of used gear, it could lead to more than $500 in new revenue per year for Peloton. With the new used equipment activation fee, that number could rise to more than $600 for the first year.
“We’re saving the customer a lot more than $95,” Kimmelfeld told CNBC on Thursday after the new activation fee was announced. “I don’t think it’s going to stop or slow people down from buying aftermarket gear … because you can pick up a bike faster and cheaper in the aftermarket, even with the $95, let’s say tax, from Peloton. ”
Trade My Stuff sells first-gen bikes for $499, compared to $1,445 new. It offers the Bike+ for $1,199, compared to $2,495 new. It also sells used soles for $1,999, compared to $2,995 new.
Since starting his business, Kimmelfeld has worked with people looking to sell used Peloton gear and has since sold “a few thousand” bikes. In 14 cities across the country, including Los Angeles, Denver and New York, the company offers same-day or next-day delivery. In addition to these locations, it provides delivery within three to five days. This compares to a new Peloton purchase, which can take much longer to deliver.
The used equipment activation fee is designed to ensure that new members “receive the same high-quality onboarding experience that Peloton is known for,” the company said. Bruzzo said those who buy a used Bike or Bike+ have access to a virtual custom fit before their first ride, as well as a history summary that shows how many rides those bikes had before they were resold.
“We also offer these new members discounts on accessories like bike shoes, bike mats and parts,” said Bruzzo. “We will continue to lean into this important channel and find additional ways to enhance the new member experience, for example by providing early education about the wide range of fitness modalities we offer and the many series and programs that the our trainers to new members.”
