Rundown: Peloton takes away free app workouts, adults help boost Lego's sales & Amazon's plans for just walk out tech

0:05Hello, welcome to the Modern Retail Rundown. I'm Gabby Barco, and I'm here with our managing editor, Ana Hensel. Hello, Ana. Welcome back to the show. Thank you for having me, Gabby. How's it going? It's going great. I know today's a special day for you, so I'd like you to do a shout out. This is your idea. I mean, I wouldn't. It's not a special day for me. It's a special day for everyone. I was going to start this by saying happy Taylor Swift album release day to all who celebrate. But there's also been a lot of great albums out recently. So I hope you are listening to something great today in addition to this podcast.

0:47Yes, yes. And I will leave it at that. Okay, so this week, yeah, well, we have a few fun topics, actually. This week, we're going to be talking about Peloton getting rid of their free app memberships. So, you know, no more freeloading on the Peloton app for new people. And then we're going to talk about adults that are helping boost Lego sales, which, yeah, I want to ask you a little bit about your relationship with Legos, Ana. Do you have one other than, you know, secondhand? So not currently. I definitely remember playing with Legos as a kid. It wasn't my top toy. I think that would be Easy Bake Oven.

1:33What about you, Gabby? Yeah, not a Lego person. And I think I was more like crafts, painting, that kind of thing. But I did nanny for a little bit and I've stepped on a lot of Lego pieces. So I feel like my experience counts too. Yeah, classic pain points. But there are a lot of people who are still fans of Legos as we'll get into. Yeah, it seems like, you know, of course, with COVID and everything, a lot of people picked up new hobbies and Lego really was able to capitalize on not just kids, but adults also getting into it. We'll talk about that a little bit later. And then of course, we have to talk about Amazon in some capacity at any given day.

2:16So today we're going to talk about how Amazon is planning to use their Just Walkout technology. There's been a lot of shifts with that program the last few months. It's kind of unclear what they want to do with it themselves after they got rid of it in their own stores, but it seems like maybe they'll be licensing it out. That might be the next move. But yeah, let's start with Peloton. So this week there was a CNBC report that said that in the last few weeks, Peloton essentially took away their entry-level free membership tier, which they launched last May. This is fairly new. This is when they did the whole relaunch, focusing really on virtual workouts and content to bring in new customers.

3:08But as we'll get into it, it seems like that offering cannibalized actual paid memberships. So this is kind of a risk you take with offering free trials with subscription. Um, yeah. Uh, so I think with this, it's really just, um, uh, the way they're framing it is that they're just constantly testing new ways to engage with customers. And so with this, the free tier, how it works is, or worked is that you have like a rotating set of classes. You don't have access to everything Peloton, but you do have, you know, some workouts at any given time. And so, yeah, it's still available for current members.

3:54I thought that was interesting. They're just, you know, not allowing new members to use that. You do have to start paying at least$12.99 a month for that. So, yeah, what are your thoughts on this shift? Just, you know, such a short amount of time after testing it and realizing that it's not working. Yeah, I just feel like Peloton is still struggling to find what the right strategy is post-pandemic for it. So, you know, the big thing that Peloton struggled with after the pandemic is that a lot of people who maybe would have bought Peloton bikes or treadmills a few years from now, They kind of moved up their purchase to during the pandemic because that's when everyone was buying fitness equipment.

4:43Peloton had hoped that this kind of would grow their user base. It would mean that they grow more quickly. But the reality was is that it meant that more people basically moved up when they would buy a Peloton bike. It didn't really grow their total addressable market. So now Peloton has been trying to find other ways to bring in new people. And I think the thing, clearly the thing it was trying to do was bank on the popularity of, you know, at-home fitness content and introduce some free programming for people. And then the idea was that, you know, people would test out this virtual or like free content and then be like, hey, maybe I should pay for the Peloton app or I love this so much, maybe I'll get a Peloton bike.

5:37And I think the fact that they are doing away with this is a sign that clearly it didn't take off as much as they wanted to. And yeah, Peloton is still struggling. I mean, this stat, you mentioned, Gabby, that Peloton's market cap went from$47 billion during the pandemic to$1.2 billion is pretty crazy. And I think it just, yeah, a very stark sign of Peloton's changing fortunes. Although the one thing I think that's interesting is that it's still a lot better than the market cap of a lot of DTC companies. You know, some of them are trading at just like 100 million market cap or something. So, you know, there's still time for Peloton to turn it around, but it seems like nothing is really taking off for Peloton, including experimenting with the free version of this app.

6:32What else have you been seeing under new leadership, Gabby? Yeah, so the new CEO, Barry McCarthy, he took over at the beginning of 2020. So, you know, right around when COVID hit. But given his background, he's been at Netflix and Spotify, it makes sense that, you know, they tried to shift to subscriptions and content to grow just recurrent monthly revenue as opposed to relying on one time hardware purchases. So usually what would happen is people would buy the bike or the treadmills too, which they became known for, for a couple thousand dollars, and then add on the app later. But in this case, obviously, like you said, a lot of those people built out their home gyms.

7:20And so you kind of end up hitting a wall at some point. I mean, we saw a lot of those reports on Peloton bikes being given away on Craigslist and Facebook Marketplace. So the demand has now kind of subsided and there's just too much supply. So yeah, in its latest earnings, Peloton reported net loss of$242 million for the quarter that ended at the end of 2023. But even shifting to subscription, there are numbers that show that there is still churn from that, which is what they were betting on. Yeah. And something else that came to mind as we were talking about Peloton, something else they tried and then recently did away with is last year they announced they were doing this partnership with the University of Michigan where they would have like co -branded bikes.

8:17And then also, I think college students at the University of Michigan would get discounts on like apparel or something. And so that was going to be another way that Peloton was going to try to bring in more users doing partnerships with more colleges. but then they said they weren't like six months later, they're like, actually, we're not gonna keep doing this. So I feel like the story here is just that Peloton is still looking for ways to, again, try to bring in new customers who maybe wouldn't inherently think of themselves as like Peloton users, try to find new ways for Peloton to like introduce itself to them.

8:57But none of these ways really seem to be working. So Peloton is going to have to figure that out. Yeah, and it seemed like at least with this app relaunch, as early as last fall, McCarthy said that it was less successful at engaging and retaining free users and converting them to paying memberships, which was really the goal. And so in this past quarter that I mentioned, Peloton also lost 29 ,000 subscribers at a 1.4 % monthly churn. Any company that has a subscription business knows that churn is really the number one priority usually preventing that. And so, yeah, the people who aren't staying on for free are also canceling.

9:44So right now, I think maybe what's happening is that Peloton is just testing different things. And they did mention that actually, like they're still trying to figure out their new direction after being so heavily focused on equipment. But there is, yeah, a little bit maybe of disconnect too with that until they get there. Right. We'll see what happens. Well, next we're going to talk about a well-known brand that is trying to target a new type of customer. So as we mentioned earlier in the show, So grownups have become a big customer base or a growing business for Lego. The Wall Street Journal reported that in 2021, adults buying Legos for themselves made up a fifth of Lego sales compared to just 5 % five years earlier.

10:41That's a pretty big jump. And yeah, I think I mentioned before we got on the call, their price points are weirdly higher than you would imagine for a product like this. Yeah, it's crazy. I mean, I clearly am not the target demographic for this. But yeah, as we'll get into, some of these sets cost like$500, which is, I can see why Lego is investing in this. because if you can get someone to buy a$500 Lego set, why not? Yeah, they've done a good job with collaborations and limited editions. You see all these really elaborate designs now. But it is interesting to kind of have this growing customer base while at the same time, obviously, the kids' products business, I don't know what they call it, has been their sort of core for such a long time.

11:40But Lego declined to disclose their current sales figures, but they did say that adult sets continue to grow even post-COVID. And as a whole, they hit $9.7 billion in revenue last year. So yeah, I mean, it seems like we saw a lot of these sort of hobby-based products and services decline. I mean, we just talked about Peloton during, right after the pandemic and, you know, everybody went back out in the world. But the fact that this is sustaining for Lego is pretty interesting. Yeah. And I think the way that they are going after these customers is pretty smart, which they have a, sorry, terrible acronym for these shoppers, but they call them A-Falls, I don't know how you say it, adult fans of Legos, basically.

12:35But, you know, I think to your point, Gabby, about like, how do you grow a business for adults when your primary product is for kids? Like, it's not like Lego is taking the same product and selling it to adults. I think they're being thoughtful about like, okay, how do you create a more sophisticated version of Legos, basically. So they really started to invest in this business in 2020 when they launched a new 18 plus category. It now sells 142 sets for grownups on its website compared to about 926 sets available for sale on its US website. So the sets it sells for adults, I mean, first of all, they're pricier.

13:16Many of them cost$300 or more. Again, if you can convince adults to spend more, why not? But they have like sleeker packaging. They're designed to be more intricate. Basically, I feel like the idea is that they want it to be something that you would feel comfortable putting on a coffee table or a bookshelf and would look kind of cool and somewhat blend in with everything else you have. They also fall into what Lego calls its Lego icons range. And oftentimes, they're, again, more intricate builds and they're designs that are inspired by franchises. Um, so this includes a 6 ,167 piece set depiction of Rivendell, uh, which is a Lord of the Rings town.

14:08Sorry, I have, I've never read or seen a Lord of the Rings movie. So I may have butchered that. Um, again, not the right demographic here and an$850 Millennium Falcon replica. Um, so I think going after nostalgia, that's very smart. um the other thing is it sells a botanical collection which has become popular among women um and this was a plot point on abbott elementary last year do you have you seen this episode gabby or do you remember it i have seen this episode um this is the one where she's making uh the flower lego uh well so it's a yeah so what uh quinta brunson's character who is kind of dorky she's dating this guy who's like not the right fit for her.

14:55And what he gives her her Valentine's Day is a Telfar bag, which most women would love, but she's not familiar with Telfar. And she just like, she thinks it's a tote bag and starts using as a tote bag. And her boyfriend's like horrified when she's putting colored pencils into this expensive Telfar bag. And then her kind of work crush who's a better fit for her, but he's dating someone else. He gets his girlfriend a set of bouquet Legos. And his girlfriend is disappointed. But Quinta Brunson's character is like, oh my gosh, that's so cool. I would love a set of flower Legos. So again, clearly the demographic there.

15:38And I also saw a fun stat that around that time that that episode aired, which was last year, there were like 300 million views of the Lego flowers hashtag on TikTok or something. So yeah, clearly this has become a very big business for Lego. It's starting to like work its way into pop culture. Yeah, I think with that and shout out to our producer, Sarah, who has some really intricate displays in the background. I did not even realize those were Legos, which I guess is the point. Cool. So yeah, I think with this resurgence and then speaking of, you know, these sort of toy franchises, it seems like capitalizing on these trends is working out for these types of brands.

16:25Yeah, I feel like it's going to get overblown at some point. But right now, a lot of companies are finding success with like, tapping into nostalgia and releasing products for kind of adults who are still fans of like beloved franchises. And then let's move on to another hotly debated topic, which is Amazon's Just Walk Out technology. So Amazon is now pitching other retailers on this tech. For those unfamiliar, this is essentially the program where you scan your phone, you walk into Amazon-owned stores, their convenience. I think Amazon Go is the main one. You shop around, and then you walk out, and you see your total in your cart.

17:16There's some controversy around how that works, but we did see that they stopped using it. I think this was a few months ago, right? Or maybe a few weeks ago that we heard that. but now there's a yeah so amazon is very uh you know they they put out a press release this week seemingly to try to like quote unquote correct the narrative um but basically what happened is amazon announced it would stop using its just walkout checkout system at its 28 amazon fresh stores which are its grocery stores and two whole foods that had started using the technology so i I think that there was a lot of chatter around, oh, Amazon is giving up on Just Walkout technology.

18:01And Amazon, again, put out a press release this week basically being like, no, that's not true. We're still selling this tech to retailers. We still believe in it. But basically what they said is we think that Just Walkout is a better use case for smaller stores. And we're going to use different checkout technology in our grocery stores. And they basically laid out all of the checkout technology they're investing in and what they think the best use case is for it. Yeah. And so I believe they already have examples of these retailers. I think convenience seems to be a big focus on it rather than using it in their own stores.

18:46Um, but with that said, uh, yeah, I think this tech and, you know, I should mention that we say this a lot, but Amazon is sort of known for testing and reiterating their products, uh, over and over until they figure out the best use for them. So yeah, what else has Amazon done in checkout? I mean, this is such a big area of focus for them. Yeah. Yeah, so Amazon basically has three different types of checkout tech that it has invested in that is now trying to sell to retailers. So it has Just Walk Out, which it's been selling to businesses like convenience stores and stadiums and in airports for a few years now.

19:31And again, Amazon, to kind of dispute the fact that it's giving up on Just Walk Out, it said in this press release that the number of third-party stores that use Just Walk Out is set to more than double this year. And I do think that there's a use case for it. I've seen more convenience stores in sports stadiums especially. I don't know if it's Just Walk Out specifically that they're using or if they're licensing a similar tech from another company. Um, but I do think it works well in like a, when you are in an area with a bunch of people, they want to get in and out as quickly as possible. And you're selling maybe a very limited assortment of like candy, popcorn, soft drinks, whatever you get at like a sporting event.

20:20Um, so I think that that does make sense. Then the second thing that Amazon has is dash carts, which are basically smart shopping carts. So dash carts have things in them like an on-cart screen to help shoppers navigate the store more easily. Similar to Just Walk Out, Just Walk Out uses computer vision and sensor technology to basically keep track of what you're buying as you pick it up. And then when you walk out of the store, Amazon knows what you bought, basically. Dash Carts kind of does that same thing, but in a shopping cart. So it's the shop, as you put things in the shopping cart, that tallies up what you buy.

21:02You can also weigh things like produce. And then again, skip the checkout line. Amazon knows what you bought as you're walking out the store. And Amazon has said it believes the Dash cart is better suited for larger stores. So it's begun using that in its grocery stores and also selling, again, selling the tech to third-party retailers. and then the last thing is Amazon has a palm recognition service called Amazon One which I haven't signed up for it because I don't need to like link my palm print to anything but it allows shoppers to link things like their credit card to their palm print and then pay for things by just scanning their hands and despite you know I there's definitely convenience there for sure I I imagine some people have privacy concerns, but it seems to be really popular still.

21:57Amazon has said that Amazon One has been used more than 8 million times. It's also available in more than 500 Whole Foods stores and in more than 150 third-party locations. Yeah, have you used any of these checkout systems, Gabby? I have done Just Walk Out when, you know, we used to just a little insider. I used to work in a building with an Amazon Go store that used that. Yeah, and I had worked in the area previously, so I was using it. I think one of the funniest things that happens during that, at least to me, is when I just walk around in circles and decide I don't want anything. And then I just walk out.

22:37It's like zero dollars spent. So it was a cool service, but it was hard. Yeah, it's hard to tell how scalable it is outside of convenience. And as far as Amazon one, you know, I do see it every time I go to check out Whole Foods and like yourself on it. I always think, you know what? Apple pays just as fast. Why would I go through that? That's too much work. Yeah, no, it's very true. I think especially when you have mobile wallets, I don't know how scanning your handprint is that much faster. but Amazon has been able to, it seems like, sell it to other retailers. I think the big question I always have is, and because we saw this even a little bit with Amazon Web Services, I think some, you know, Amazon's a competitor to a lot of retailers and it's kind of like, why would you buy tech from one of your biggest competitors?

23:36And we saw this with Amazon Web services a little bit. Microsoft and Google also sell cloud computing services. And in their pitch, sometimes they play on this fear of Amazon a little bit, like basically buy the service from us rather than this other retailer who's competing with you. So that's always my question when Amazon sells any tech like this is, will retailers be skeptical of buying yet another service from Amazon. But it also seems like with Just Walk Out, you know, again, they're going after stadiums a lot, which that doesn't really compete with Amazon. So maybe that's the way forward for them is like they can find enough companies that sell physical products, but aren't like that directly of a competitor to Amazon, and they'll still be willing to pay for it.

24:28Yeah, for sure. I mean, And, you know, it seems like the possibilities are endless. Like there are so many airports that you can put these things in. Although I do wonder something to look into later. I don't think those are Amazon, right? The Hudson News Partnership. I don't. Yeah. And it's it is it is tricky because there are other companies that are selling similar tech. So, yeah, I've been in situations where I bought something and it has used a just walk out like technology, but I'm not 100 % sure if it was Amazon system. So yeah, and I'm sure we'll see even more companies, you know, try to get in on that.

25:08Yeah. And I just as an aside, the tech is, I personally don't think is there yet. I think the last time I tried to use it, it ended up glitching on the app and I had to still get, you know, my$7 water bottle and JFK scan. So So yeah, I think as far as training the customer to use it, it's going to be a little more while. Also, another thing I want to add is this is an interesting time for sort of like the whole self-checkout space because we're also seeing, I think we just reported on this, some retailers are taking away self-checkouts. So it's almost like we keep progressing and progressing at the same time.

25:53Yeah, no. And I think it's to your point, again, we I was just at a baseball game like a week ago or two weeks ago where they had a checkout system where you put everything on a scale and like it automatically knew what you bought. And like that was the way to check out basically versus having a cashier scanning a barcode or something. I don't think it was just walk out, but they had someone there who was like explaining the system to customers and how it worked. And yeah, I think with any self-checkout system, obviously you still need some people there to explain how it works to customers. sometimes it glitches you know some people sometimes it doesn't get things and so I do feel like there is this constantly like push pull a little bit with self-checkout like you said retailers roll it out and then maybe they're like oh actually it only works for this specific use case so we need to limit it to this item so it'll be interesting to see what happens.

27:03all right well that is a wrap for us this week you can rate and give us a review anywhere you get your podcasts and please follow us on social we're at modern retail on twitter uh slash x uh you can read our coverage uh also i myself i'm at gabriella barco it is my full name uh you can go to Twitter and see some bad takes slash good articles being posted. Great articles. Thank you. Thank you. And Ana, what about yourself? You can plug your Twitter too. Yes, I am at A.H. Hensel. So two H's in there on Twitter. I'm also more active on LinkedIn. So you can also follow me on there these days. Yep.

27:47Same here. Same name. All right. Well, thank you as always for listening and we hope you'll come back next week.