Tonal joins Peloton with decision for massive layoffs

With a slowing demand and in preparation for a possible recession, Tonal has decided to cut 35% of its workforce. This follows Peloton’s recent decision to lay off an additional 570 jobs (now over 3,000 this year) as they move to outsource all of their manufacturing. Tonal currently employs about 750 people today, which is almost seven times the amount before the COVID-19 pandemic.

Tonal’s CEO, Aly Orady, is emphasizing the need to be profitable, especially with the company’s goal of an initial public offering. Tonal has never been profitable since it was founded in 2015. Orady believes the job cuts will make the company profitable within a few months.

In an interview, Orady said “As we head into a recession, and many of us believe we’re headed into a recession, it’s really important that we become a business that’s here for the long term. What we’re doing is effectively going from a hypergrowth business … to more of a sustained-growth business.”

Orady mentioned that Tonal will be focused on cutting customer acquisition costs, partly by scaling back on marketing.

“The public markets are no longer rewarding hypergrowth when it comes at the expense of profitability. And as such, private market investors are no longer investing as many dollars or as aggressively to support businesses through hypergrowth,” Orady said.

Tonal sales

Orady attributes any slowdown of Tonal’s sales in the past 90 days to Tonal pulling back on marketing. However, it would be hard to argue that the slowdown was not also due to other factors. Summer travel, more people headed back to the gym, and inflation hurting consumer spending power have impacted almost all connected fitness companies.

Tonal also recently increased the price of its equipment by $500, from $2,995 to $3,495.

Tonal employees who are impacted by these job cuts will receive an eight-week minimum of continued pay. The company also said they will receive healthcare benefits through the end of September.

In a memo to its workers, Tonal also said they will be offering extended equity vesting for all employees to become shareholders. This includes accelerated stock option vesting and an extended four-year time frame that option holders have to exercise their stock options.

Orady added, “To those leaving, I am truly sorry. This decision is in no way a reflection of your work or contributions, and I meant it every time I said the Tonal team was the best team on the planet.”

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