On Wednesday, my weekend apparel company of choice (Lululemon) announced a 5-year partnership with the company whose exercise machines help salinate my basement floor (Peloton).
Through the partnership subscribers to the $39-per-month Lululemon Studio All-Access will get access to Peloton classes.
Peloton will begin selling co-branded Lululemon products, and some of its instructors will promote Lululemon clothing.
Between the (balance) sheets: As is the case with many M&As, Lululemon's acquisition of Mirror (later branded as Lululemon Studio) was not a win for shareholders of the acquiring company. It drove $443 million in impairment charges during the three months ended Jan. 29, 2023, prompting an attempted sale to offload it from LULU's balance sheets.
As part of this partnership, the Lululemon Studio Mirror (and Lululemon classes) will be discontinued. The deal allows LULU to close that chapter and pursue it's original goal for the Mirror acquisition through a lower risk and potentially more viable means.
Through the deal, Peloton gets the opportunity to put pedal straps on its balance sheet and steady out its volatility.
Its stock price which spiked at $160 per share during the pandemic, bench squatted to less than $5 per share this month.
The partnership also creates the opportunity for Peloton to infuse its subscriber base (whose growth is reportedly anemic) with some much needed hemoglobin through Lululemon Studio Mirror subscribers. The deal could drive lower customer acquisition costs, a higher conversion rate and a stickier subscriber base (read: lower burn on the churn).
Why it makes sense: The two premium brands are a seemingly natural fit from a brand perspective making collaborations on merch and content a marketer's dream. Each company also has a problem that the other can meaningfully solve. The deal allows LULU to staunch the bleeding from Mirror and means Peloton's ($78) All For One bucket hats could stop showing up in the IG feeds of innocent consumers.
Why it might not make cents: There is the question of whether there's meaningful overlap in LULU and PTON's customer bases- no small matter. The companies will have to work through this to keep loss of the accretive value for the partnership at bay and find ways to drive ROI for marketing costs related to the partnership.
Sidebar: I'm curious about how the deals for Peloton instructors who promote Lululemon products are structured from a revenue and profit-sharing perspective and from a deal brokering perspective. If a PTON instructor breaks out and becomes the next Richard Simmons (I'm dating myself, but this is a safe space) and sends Lululemon product sales skyrocketing, what is Peloton's take in the profits? In a best case scenario how should that work? I may dig further into it.
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