Peloton rallied after agreeing to offer bikes and accessories on Amazon as part of a turnaround plan, breaking with a longtime practice of selling products through its own channels.
The move to open a US storefront on Amazon’s sprawling online marketplace will help Peloton expand its distribution and make products more readily available, the company said on Wednesday. Until now, its wares have just been available via its website and retail showrooms.
The news sent Peloton shares up 20 per cent to $13.48 in New York, the biggest one-day jump in more than six months.
Before Wednesday, the stock had lost more than two-thirds of its value this year as the company struggled with slowing demand, an inventory build-up and strategy changes.
Amazon had previously been cited as a potential acquirer of Peloton — and investors pressed for such a deal earlier this year. But Peloton chief executive Barry McCarthy has said that he’s not trying to sell the company.
“Peloton’s retail partnership with Amazon.com in the US broadens its reach, though we don’t think of this as a precursor [to a merger or acquisition],” said Geetha Ranganathan, a Bloomberg Intelligence senior media analyst.
“The pact should help boost Peloton’s top line, but — more importantly — trim distribution costs and help it turn free cash flow positive in fiscal 2023.”
Mr McCarthy, a tech veteran who took the helm in February, is trying to turn around a business that thrived during the early days of the pandemic but slowed drastically in the past year. He’s looking to reinvigorate sales, boost efficiency and restore some of Peloton’s former cachet.
In another effort to goose sales, Peloton is redesigning its bikes so customers can assemble them at home and will explore letting users beam its content to rival workout machines.
Investors will get more information on Mr McCarthy’s comeback plans Thursday morning, when Peloton is due to report quarterly results.
Amazon provides Peloton with another way to work down its inventory pile-up, which it amassed as pandemic lockdowns faded.
Mr McCarthy’s general strategy is to rely more on partners to operate the business — a push that’s furthered by the Amazon arrangement.
The New York-based fitness company announced plans earlier this month to lay off about 800 workers, raise the prices of its equipment, and outsource deliveries and some customer service functions. It’s also looking to wind down much of its retail footprint in North America starting next year.
It’s not hard to see why Peloton chose to sell its wares on Amazon. The Seattle-based company has a commanding position in online retail in the US.
Insider Intelligence estimates Amazon will account for 38 per cent of US retail e-commerce sales this year, with Walmart a distant second at about 6 per cent.
“Expanding our distribution channels through Amazon is a natural extension of our business and an organic way to increase access to our brand,” Kevin Cornils, Peloton chief commercial officer, said in the statement.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
