Unicorn at full speed. Growth by all means.
“TOGETHER WE GO FAR”
Unicorn – Extreme Growth
PELOTON, belongs to that selective unicorn company league with an innovative business model in the fitness sector, based exclusively on growth expectations, with no track record of profitability and with a valuation of more than $1 billion, in recent IPO process.
It started in the USA in 2014 selling its first connected premium exercise bike and currently provides almost 1,000 different sessions per month online with the best available instructors.
It provides a rewarding experience to its half a million subscribers who after paying a minimum of 2,000 euros for their connected bike, pay about 39€ per month to be able to enjoy at home this innovative cocktail of Fitness + Media + Technology.
With 8-13 sessions per month and a low churn ratio of 0.65% per month, they have managed to articulate a healthy “addictive” experience.
Its Direct to Customer model mainly online, also has its own retail limited network (75 stores with a wide range of formats such as the 30-sqm micro store or the 150-200sqm Studio where customers can try and experience the products and fitness sessions.
Explosive Income Growth
Total revenue has quadrupled in the past two years, with a strong investment in marketing/sales (35% on total sales) and an R&D effort of 6% of total sales.
Its growth expectations are based on the international expansion (recently it has begun its activities in Canada, Germany and the UK) and the extension to other product areas such as yoga/mindfulness.
In addition to its core revenue from product sales, it is clearly being supplemented by its monthly subscriptions, which already account for 20% of the total with strong growth over the past two years.
Retail Strategy and Operations Specialists
The results line reflects heavy losses due to the high cost of acquiring new customers and the main focus on growth at all costs in the hope of achieving a higher volume that balances the current cost structure. There is a big question mark of financial feasibility at midterm horizon.
This financial model is an exclusive privilege as a Unicorn company that does not apply to other conventional companies (which must provide dividends) and that is justified exclusively by their high growth expectations.
The fitness sector is not being at all oblivious to digital transformation:
- Digital platforms grouping hundreds of fitness centre of various brands and formats: e.g. Gympass, Andjoy, Fitpal
- Transformation of the traditional gym business towards specialization/segmentation: e.g. Equinox
- Brands of connected equipment similar to PELOTON: e.g. SoulCycle, Echelon, Techno Gym …
It is clear that Peloton, disruptive, with its revenue/cost structure and lack of business profitability, to date, can not be applied to the conventional Retail model.
Spite of all this, we can identify a number of elements and features of the new Unicorn businesses that sooner rather than later, will be selectively adopted by Retail and Brands:
- Direct to the Customer
- Focus on mix of products and services
- Use of innovative technology to customize and provide “on demand” the product/customer service
- Subscription. Recurring income
- Extreme omnichannel. Online and physical
- Clear adaptation of physical retail formats based on the different roles they have (e.g. stores from 30 to 200sqm). Limited footprint.
- Addictive and satisfying experiences in communities
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