Flipping Peloton into Kirkland Fitness (Yes, Really)

🧠 The Takeaways

Today we’re buying Peloton and flipping it into Kirkland Fitness.

1. Slap on the Kirkland Logo and MOVE units.

2. Why a Fitness anchor product drives Costco’s flywheel.

3. How Costco can leverage fitness into the rest of the home.

+ … Rumors of the great AI demise.

LBAB! Community - Rumors of the great AI Demise

95% of AI projects failed last year.

Half a trillion in market cap got wiped out last week.

MIT just published the study that triggered the panic.

But let’s actually break this down…

Big enterprises aren’t failing at AI because “AI doesn’t work.”

They’re failing because their businesses aren’t ready for it.

1. Timeframes. Fortune 500 companies move at glacial speed. 12 months is nothing. Most transformations take 18+ months minimum.
   

2. Data chaos. Their data is a total mess. No amount of AI fixes bad inputs. Garbage in, garbage out.
   

3. Software companies are the winners. They’ve been structuring data for 20 years. They were already ready.

So what do you actually do about this?

• Don’t get caught up in the hype cycle of “AI is magic” or “AI is dead.” Both are wrong.

• Treat AI like any other resource. Whether that’s a new hire or a new software tool. If your infrastructure isn’t ready, it’s going to flop.
  Ask: What data am I feeding it? What workflow am I plugging it into?

We’re only 2–3 years into this wave. 

The real upside will take 5+ years to play out.

Next week, I’ll share the specifics of how I’ve set up AI inside my own businesses + where it’s actually delivering value vs. where it’s still a shiny object.

Don’t get fooled by the panic headlines.

We’re in the early innings.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. And I was never here.

Peloton (everyone's Pandemic-era aspirational workout bike) is staving off death because it didn’t realize that anyone can slap a screen on any bike or treadmill.

• Share price: $7.60

• Market Cap: $3.1B

• L5 Performance: -69%

• P/E Ratio: N/A

Once this shareholder lawsuit about misleading investors post-COVID (when the stock lost 85%+ of its value) drills the final nail in their coffin, we’ll be there to scoop them up and turn them into a $500m product line for Costco.

Financial Summary

2024 Financial Statements (YoY Comparison)

Sales: $2.5B (-11%) 👎
Gross Profits: $1.3B (+37%) 🤩
OPEX: $1.3B (-38%) 😥

Net Income: -$118M (+91%) 🤢

Link to Company’s earnings

TLDR Analysis: The brand equivalent of Chemo

• Hardware sales fell -28% while Sub Rev is flat YoY. 😰

• Hardware Gross Margins are finally positive. 😐

• Sales Marketing and R&D all -25%+ YoY.  😰

These are the exact moves the brand needs to take to fight off death, but it’s brutally painful and leaves you with the question: Can they survive?

Despite their deep cuts + pivots, they’re shrinking and still spending 52% of their Revenue on a 51% Gross Margin biz. Growth looks challenging. Can they really cut more?

Let’s Fix This Biz

Here are Costco’s 3 steps to flip Peloton from a -$100m/yr biz into a $500m Kirkland product line.

1) Accept it’s not a premium brand. Move on.

I always thought Apple should have bought Peloton and (with the Apple Watch) made Apple Fitness the biggest premium 360 Fitness offering in the market. 

Because if Apple slapped a logo on Peloton devices, sales would go boom.

Costco has the same obsessive love with Kirkland-branded products, just at a lower price point.

Peloton has ruined its brand after discounting through their nose to move the massive inventory they’ve been sitting on for 4 yrs.

They won’t survive falling to Walmart affordability levels, but Costco is the perfect attainable-luxury customer where, through enough scale, they can finally make money selling bikes. 

(LY Hardware Gross Margins = 8%. 🤮🤮)

You bet your bottom dollar we’ll lower prices and slap a Kirkland logo on Peloton’s premium bikes. The same way Costco took the world’s #1 beer and turned it into their new 12-pack for $15.

The real money is pumping out Kirkland bikes to get everyone subscribed to the Costco fitness membership (add-on to regular membership) to get the Peloton content.

This gives us the foothold into an ecosystem of sales.

Takeaway: Whoever wins distribution… wins. You can slap a Kirkland logo on almost any product.

2) Create the Fitness Flywheel.

Costco’s biggest opportunity: having an anchor Fitness product to upsell more products into. 

As a low-margin-high-volume biz, driving more Fitness products customers into carts will make this acquisition look like a drop in the bucket.

Costco is almost there, but they don’t have a wow anchor product.

None of them are impressive or have meaningful sales volume. 

They need a Kirkland version of these products to truly move units, like they did with gold bars.

You anchor massive purchase volumes around someone buying a Kirkland Bike/Treadmill. Here’s the list of potential upsells Costco can sell:

• Apparel

• Cycling shoes

• Dumbbells / Kettlebells

• Resistance Bands / Sliders 

• Foam Roller / Massage Gun

• Yoga Mat & Blocks

• Adjustable Bench

• Electrolyte Drinks / Hydration Tablets

• Protein Powders / Bars

• Collagen or Joint Support Supplements

• Cooling Fan / AC Upgrade

• Better Seat / Gel Cover / Padded Shorts

• Bike Mat or Flooring Tiles

• Storage Racks

• Full-length Mirror

• Heart-Rate Monitor

• Smartwatch/Fitness Trackers

• Wireless Earbuds / Headphones

• TV/Monitor Mounts

This is the real flywheel. 

Whether Costco sells Kirkland or other brands; versions of each of these products, it:

1. Explodes Costco’s AOV.

2. Extends into high repeat purchase categories.

3. Creates another anchor reason for a customer to enter a Costco store.

A Retailer’s dream. 

Takeaway: Always optimize for maxing out a customer’s cart.

3)  Collect In-Home Data

The Costco membership already operates like Amazon Prime without all of the Digital/software offerings.

They don’t need to clone Amazon, but Big Boxes are all (Including Walmart) competing to be your Grocery/everything store.

Costco is so good at moving products into your home that you probably don’t think about how much more valuable they could be if they knew more about how you were using those products.

Fitness is an approachable entry point that with Costco’s brand won’t alienate customers.

I buy a:

1. Kirkland Bike.

2. Kirkland Fitness tracker (connected to my bike).

3. Food, supplements, and clothing for my new lifestyle. 

Today, Costco is missing the data to predict when those re-purchases will come or when you’re ready to add on that extra product(s).

The tracker will send data that are massive leading indicators on eating, sleeping, hygiene, and cleaning trends. 

Layering on someone’s exercise data on top of their purchasing data will give Costco an unrivaled Merchandising predication engine that no other brand is trusted enough to get access to.

Within the next 15 years, Costco will have to start mining data to better predict what products customers want and when.

They may just have the brand that, with the right entry points and offerings, they’d convince customers to give them their key workout data.

Takeaway: Combine data. ID trends early. Sell to the moon.

Final Thought

Everyone always talks about Amazon, Walmart, and Target as the Retail Bellweathers..

But Costco is the retail 🐐. 

But we don’t give enough credit to how unbelievably successful Costco is.

• They fill empty warehouses with pallets and make customers unpack + prep their own products.

• Collapsing multiple parts of the supply chain (warehousing, food/packaging prep, stockists) to CREATE incredible costs savings 

• They leveraged up to incredible scale to HAVE massive cost savings.

• They got the customer to pay an annual membership to essentially be their own food packer, picker, and preparer.

And they move $183B worth of products through their stores every year. 

That’s the same GDP as Turkey or Costa Rica (#24 and #25 globally).

Costco must be brought up every time that Amazon and Walmart are mentioned.

It’s truly incredible how much they’ve accomplished considering how little they do.