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Peloton on Thursday said it will start charging new subscribers a one-time $95 activation fee if they bought their hardware on the secondary market as more consumers snag 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 starts to see a meaningful increase in new members who bought used Bikes or Treads from peer-to-peer markets such as Facebook Marketplace.
During its fiscal fourth quarter, which ended June 30, Peloton said it saw a “steady stream of paid connected fitness subscribers” who bought hardware on the secondary market. The company said the segment grew 16% year over year.
“We believe a meaningful share of these subscribers are incremental, and they exhibit lower net churn rates than rental subscribers,” the company said in a letter to shareholders.
“It’s also worth highlighting 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 plenty of Peloton subscribers are avid users of the home workout machines, some have likened them to glorified clothes racks because so many people stop using the equipment. Those people paid Peloton for that hardware originally, but importantly, many of them have canceled their monthly subscription, which is how Peloton makes the bulk of its money.
The ability to attract new, budget-conscious members from the secondary market who are willing to pay for a monthly subscription is a unique opportunity for Peloton to grow revenue without any upfront cost, on top of 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 around a million Bikes collecting dust in homes around the world that could be a source of new revenue for the company.
He told CNBC he previously met with Peloton executives to discuss ways to collaborate, because every time he sells a used piece of equipment, it could lead to more than $500 in new revenue per year for Peloton. With the new used equipment activation fee, that number could grow to more than $600 for the first year.
“We save the customer a lot more than $95,” Kimmelfeld told CNBC on Thursday after the new activation fee was announced. “I don’t think it’ll stop or slow down people from buying secondary equipment … because you can get a bike delivered 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, compared to $1,445 new. It offers the Bike+ for $1,199, compared to $2,495 new. It also sells used Treads for $1,999, compared to $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 around the country, including Los Angeles, Denver and New York City, the company offers same or next day delivery. Outside of those locales, it provides 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 that those who buy a used Bike or Bike+ have access to a virtual custom fitting ahead of their first ride, as well as a history summary that shows how many rides those bikes had before they were resold.
“We’re also offering these new members discounts on accessories such as bike shoes, bike mats and spare parts,” said Bruzzo. “We’ll continue to lean into this important channel and find additional ways to improve the new member experience, for example, providing early education about the broad range of fitness modalities that we offer and the many series and programs our instructors provide to new members.”