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Peloton founder and CEO John Foley is on the defensive as he tries to stem the fallout from a shocking new video released over the weekend by the U.S. Consumer Product Safety Commission (CPSC) showing a young child getting sucked under a Peloton treadmill while playing with a ball.
Foley —a father of two young children with wife Jill (who is also Peloton's VP of apparel) — blasted the CPSC in a message to Peloton members on Sunday afternoon, saying the company was not trying to impede an investigation into the $4,000 Tread+ product.
"After we learned about the child’s death, we immediately reported to the U.S. Consumer Product Safety Commission (CPSC). Since then we have fully cooperated with CPSC and responded to all of their requests, with one exception: we resisted their demands for personally identifiable information of certain Members because those Members had specifically requested that we not provide that information to CPSC. At no time was Peloton trying to impede CPSC’s investigation. We were simply standing behind our Members’ right to maintain their privacy, and we remain committed to providing this type of information only with a Member’s consent or pursuant to a subpoena. Government agencies shouldn’t have unfettered access to consumers’ private information, and I am proud that we took a stand to protect these Members’ privacy," Foley said.
Continued Foley, "I imagine some Members asked for their information to be protected in order to avoid personal attacks like some that we’ve seen in response to the Tread+ incidents that CPSC publicized yesterday. Our hearts go out to Members who have had an incident where a child or pet was injured and who want their privacy at this time. As a parent myself, I hope that our Peloton community continues to treat each other with respect and compassion."
The CPSC's investigation kicked off in mid-March after Foley said a child had died after an undisclosed incident with the treadmill.
About a month later, the CPSC returned with a warning on Saturday that Tread+ owners should stop using the equipment if children or pets are around. The U.S. agency said it was aware of 39 incidents with the Tread+, including the aforementioned death of a child.
In light of multiple reports of children becoming entrapped, pinned, and pulled under the rear roller of the product, CPSC urges consumers with children at home to stop using the product immediately. The above video demonstrates the hazard to children posed by the Tread+.
— US Consumer Product Safety Commission (@USCPSC) April 17, 2021
"CPSC staff believes the Peloton Tread+ poses serious risks to children for abrasions, fractures, and death. CPSC is warning consumers about the danger of popular Peloton Tread+ exercise machine after multiple incidents of small children and a pet being injured beneath the machines," the CPSC said in a series of tweets. The young child from the video shared by the CPSC made it out from under the treadmill.
Peloton called the CPSC's comments "inaccurate" and "misleading" in a Saturday statement.
Foley stopped short of using that rhetoric in his Sunday message to subscribers, but said there are no plans to refrain from selling the Tread+.
"You may also have read news reports suggesting that CPSC believes that we should stop selling or recall the Tread+. I want to assure you that we have no intention of doing so. The Tread+ is safe when our warnings and safety instructions are followed, and we know that, every day, thousands of Members enjoy working out safely on their Tread+. But I urge you to stay vigilant. Remember, the Tread+ is not for children under 16, and children, pets, and objects need to be kept away from the Tread+ at all times. When the Tread+ is not in use, store the Safety Key away from the Tread+ and out of reach of children. Our Tread instructors remind us at the beginning and end of each class to keep these safety instructions top of mind. In addition, many of you have chimed in on social media in recent weeks to share helpful tips, such as working out during nap time, having someone watch the kids while you work out, or using a baby gate to keep children, pets, and objects away. Thank you for sharing those suggestions with our community," Foley said.
Foley added Peloton is working on a new software enabled backup access code to prevent against unwanted use of the Tread+. No date was provided on when that feature would be available to subscribers.
To be sure, the stakes are high for Peloton right now. Peloton shares fell nearly 7.3% at the end of trading Monday.
While Peloton doesn't disclose its sales figures for treadmills, they are a seen as a key ingredient of diversifying the revenue base beyond bikes and widening the company's total addressable market. If the negative headlines from the CPSC's warnings put off prospective Tread+ buyers, it could not only mean fewer hardware sales but also lucrative revenue streams from new subscribers.
Meanwhile, should existing Tread+ users stop exercising on the product it could risk recurring revenue steams as well.
With Peloton's stock priced for perfection at a forward price-to-earnings ratio of 130x — reflective of its booming business during the pandemic — how Foley and his team address the Tread+ issues will likely be a critical consideration for investors in coming weeks. Anything less than a near perfect response from Peloton may be met unkindly by the market — after all, the stock is priced for years of near operational perfection.
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