Platoon On Thursday, it said it will begin charging new subscribers a one-time $95 activation fee if they bought their hardware on the secondary market, as more consumers snap up lightly used equipment for a fraction of the typical retail price.
The used equipment activation fee for subscribers in the U.S. and Canada comes as Peloton begins to see a significant increase in new members who purchased used bikes or treadmills on 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” purchasing hardware on the secondary market. The company said the segment grew 16% year over 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 incremental revenue and gross profit for us, helping to support our investments in improving the fitness experience for our members,” interim co-CEO Christopher Bruzzo later added on a call with analysts.
While many Peloton subscribers are enthusiastic users of the home exercise machines, some have compared them to glorified clothing racks because so many people stop using the equipment. Those people paid Peloton for that equipment originally, but more importantly, many of them canceled their monthly subscription, which is how Peloton makes most of its money.
The ability to attract new budget-conscious members from the secondary market who are willing to pay a monthly subscription is a unique opportunity for Peloton to increase revenue without any upfront costs, in addition to the revenue from the original sale.
Ari Kimmelfeld, whose startup Trade My Stuff, formerly known as Trade My Spin, sells used Peloton equipment, estimates there are about a 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 had previously met with Peloton executives to discuss ways to collaborate, because each time he sells a used piece of equipment, it could generate more than $500 in new revenue per year for Peloton. With the new used equipment activation fee, that figure could rise to more than $600 in 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 this will deter or slow people down from buying secondary equipment… because you can get a bike faster and cheaper on the secondary market, even with the $95, let's call it a tax, from Peloton.”
Trade My Stuff sells first-generation bikes for $499, down from $1,445 new. It offers the Bike+ for $1,199, down from $2,495 new. It also sells used Treads for $1,999, down from $2,995 new.
Since launching his business, Kimmelfeld has worked with people looking to sell their used Peloton equipment and has since sold “a few thousand” bikes. In 14 cities across the country, including Los Angeles, Denver and New York City, the company offers same-day or next-day delivery. Outside of those locations, it offers delivery within three to five days. That compares to a new Peloton purchase, which can take significantly longer to deliver.
The used equipment activation fee is designed to ensure that new members “receive the same high-quality onboarding experience Peloton is known for,” the company said. Bruzzo said those who purchase a used bike or Bike+ get access to a virtual custom fit before their first ride, as well as a history summary showing how many uses those bikes had before being resold.
“We also offer these new members discounts on accessories such as cycling shoes, mats and replacement parts,” Bruzzo said. “We will continue to invest in this important channel and find additional ways to enhance the new member experience, such as by providing early education on the wide range of fitness modalities we offer and the numerous series and programs our instructors offer to new members.”
