Peloton acquires Precor: Seven things you need to know
In December 2020, Peloton announced it had signed an agreement to acquire Precor for $420 million. This week the deal was finalised. Let's examine the seven improvements it brings to Peloton.
1) Manufacturing in US before the end of 2021
Precor has 625,000 sq ft of manufacturing and warehousing, all based in the US. This is split between Washington state and North Carolina. Precor has 72,000 sq ft of warehousing with $4.5 million worth of parts, 96% of parts are in stock when customers require them. But why does that help Peloton?
Despite labour being more expensive in the US, let’s not forget just how heavy fitness equipment is. Precor shipped 53 million pounds or 24 million tons of equipment in 2019. Whilst Peloton has invested $100 million in improved logistics, securing air and express sea freight, the global cost of freight has increased exponentially during the pandemic (see below).
The blockage of the Suez Canal by the Ever Given has only made things worse. Twelve percent of global shipping passes through the Suez Canal; marine shipping, in turn, accounts for 80 percent of the world’s trade in goods. So despite all the talk of securing air freight, by removing Peloton’s dependency on sea freight it will significantly reduce costs whilst reducing lead times. That’s important when shipments from Taiwan to the US via sea freight can take 24-28 days.
Based on my data, 67% of Peloton’s customers are in the US. Manufacturing domestically will reduce the need for expensive and uncontrollable air and sea freight. It will also reduce the painful wait times experienced by customers whilst potentially reducing cost. A win win for Peloton.
2) Improvements to product quality
Precor has a 4,000 sq ft hardware testing facility. It has stringent processes for tooling and final assembly. All critical motion parts must meet Precor’s stringent design specifications which have been honed from decades of manufacturing high-end gym equipment.
Precor’s knowledge and experience will improve the design of the existing products, reducing failures. During the pandemic, any defects have been difficult to fix. This is a major frustration for existing customers and whilst the problems won’t be fixed overnight, in the long-term Precor engineers will redesign key components to make improvements that will pay off for customer experience and the bottom line.
3) International expansion
Precor currently operates in 37 countries including China. Gaining traction by piggy backing on Precor in these new markets will be helpful. Peloton’s content is fantastic and its instructors are loved by its members. To enter other markets it can leverage its existing instructors, most of which speak English. Australia has already been announced adding an additional 6.6 million households with broadband internet (Peloton’s definition of addressable as mentioned above).
The Netherlands has approximately 15 million English speakers and 6.7 million households with broadband internet. It too would be a sensible market addition.
Peloton already has bilingual Spanish speaking instructors in Robin Arzon and Jess King but it would require significantly more diverse content to serve Mexico with its 122 million population and 22 million households that have broadband. Spanish content would allow entry to other Spanish speaking countries such as Spain and Argentina.
China represents the biggest opportunity with its 452 million households with broadband internet, but it would also require significant investment in instructors and Mandarin and Cantonese language support.
4) Data from Precor’s fitness cloud
Preva, Precor’s data cloud launched in 2010 and hit 1 billion workouts in 2019. Precor captures data to inform and transform product development, but it also uses it to monitor and diagnose faults with customer machines.
“Using Precor’s digital solution, Preva Business Suite, Preva offers automated tools to monitor equipment performance and provides the ability to gather data like never before. Take downtime and usage stats.
You can check equipment status daily and instantly report faults, plus you get regular service alerts. It’s such a powerful tool that gives operators a lot of information; they should use it more!”
Problems happen, but diagnosing faults over the phone is time consuming and relies on customers’ knowledge. By rolling out remote monitoring solutions like Precor’s Preva, faults can be diagnosed quickly. Peloton could even recommend servicing in the same way your car reports maintenance schedules.
5) Relationships with hotels and gyms
Our premium fitness solutions are installed in over 100 countries, in some of the world’s finest hotels, resorts and spas. We pride ourselves on being an approved vendor in 8 of the world’s top 10 hospitality brands.
Precor has relationships with some of the biggest and prestigious hotels in the world offering a clear route to further growth.
6) Engineering experience
Precor has 7,106 employees listed on LinkedIn with almost 100 with engineer in their job title.
Engineers like Antonio are international and provide extensive breadth and expertise beyond Peloton’s existing capabilities. Sending out Precor engineers to fix Peloton equipment isn’t inconceivable as Peloton expands internationally.
7) Opportunities in new product areas
Peloton has just two core hardware product areas, the bike and treadmill. But imagine the product possibilities when you consider the product set Precor already has. Precor’s 100 product design and engineers will really help expand the Peloton product set, perhaps by adapting existing Precor hardware to run Peloton workout software.
Another interesting area is rowing machines, which can be stored upright to save space when not in use. Hydrow, a Peloton competitor, has created a product that looks like a lot like a Peloton:
Let’s also not forget the strength training capabilities which could add yet another interesting home fitness area and opportunity for future growth.
Summary
Here’s the seven things you need to know about the Precor acquisition:
US manufacturing will reduce wait times and the reliance on expensive freight
Precor’s experience and expertise will improve product quality
Precor will help international expansion
Precor’s fitness cloud will allow remote diagnostics
Improves relationships with hotels and gyms
Adds engineering experience
Opportunities for new product areas
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