Acting in conjunction with the U.S. Consumer Product Safety Commission (CPSC) and after refusing last month to do so, Peloton Interactive has issued separate product recalls for its Tread+ and Tread treadmills, of which about 125,000 have been sold so far. The affair stems from the death, on March 17, of a child who got trapped under a Tread+. The CPSC announced this death two days later and launched an investigation with a view toward a recall. Peloton, for its part, invited the CPSC to issue a joint statement to the effect that the treadmills were dangerous only when users failed to follow the products’ instructions. What the CPSC issued instead, in mid-April, was a warning to Peloton customers, mentioning 38 other episodes in which persons or animals were injured, adding a YouTube video in which a treadmill pins down a two-year-old. Customers were encouraged to stop using the Tread+ “immediately” if they had children or pets.
John Foley, Peloton’s CEO, issued a statement in response, criticizing the CPSC’s words as “inaccurate and misleading” and stating that Peloton was not planning any recall of the equipment. Foley has now reversed his course, saying: “I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall the Tread+. We should have engaged more productively with them from the outset. For that, I apologize.” In total the separate recalls cite no less than 90 injuries and the one death. Customers may ask for a full refund until Nov. 6, 2022, or keep the machines and install new software, which will require entering a four-digit code to operate the machine. Alternatively, Peloton may be asked to come to the owner’s house and move the machine to a safer location. The Tread+ is no longer for sale or being distributed, while Peloton works out repairs. I
The original Tread version of Peloton’s home treadmill is a less serious issue than its more advanced version. The only problem was apparently the fact that its touchscreen was in danger of detaching and falling. Peloton is offering either a full refund or the option of waiting for inspection and repair.
It seems unlikely that customers will want to return all the 6,450 original Tread machines and the 125,000 Tread+ treadmills in their possession, mostly in the U.S. The potential product liability would stand at more than $500 million, but Peloton’s management subsequently put it at only $125 million. We have been unable to find out whether any of it is covered by liability insurance. Potentially greater damage will affect the brand’s reputation and its share price, although the company said it is developing new safety features.
Following the product recalls, Peloton’s stock price plunged further down, losing about 14 percent of its stock market value, which is now down by about one half since the start of the year. It was down to around $84 just before the release of the company’s latest financial results and the accompanying conference call, where the management discussed the issue at length (see the related story).
As we have already reported, Peloton’s shareholder have been invited to take part in a class action lawsuit against John Foley and Jill Woodworth, the CFO, alleging false and misleading statements: specifically, the failure to disclose in his letter of March 18 to Tread+ owners the other injuries that had occurred with the machine.