Dive Brief:
- Stepping away from fitness equipment and into home decor, Peloton co-founders John Foley, Hisao Kushi and Yony Feng announced Tuesday that their new direct-to-consumer rug company, Ernesta, raised $25 million in a Series A funding round, according to a company press release.
- The startup’s focus is on providing custom-cut rugs with various material options at prices on par with standard-sized rugs, per the release. Bespoke delivery will be available in certain markets.
- Ernesta’s funding was led by Addition with participation from True Ventures and others. Along with Foley acting as Ernesta CEO, Kushi as chief legal officer and Feng as chief technology officer, five other former Peloton executives have joined the new venture in roles ranging from head of marketing to chief operating officer.
Dive Insight:
Custom rugs might be a far cry from at-home bikes, but Foley sees an opportunity in what the company calls the multibillion-dollar domestic rug market.
"I've always had a passion for design, and when I noticed how confusing and overwhelming the process can be for consumers who want great style at an accessible price point, particularly in the rug category, I saw a white space in the market," Foley said in a statement. "With Ernesta, our goal is to bring high-quality, custom rugs to a wide audience through a community-driven, curated and personal buying experience. Hisao, Yony and I are excited to work with a talented launch team, some of whom were part of the team that built Peloton into a household name, to help people find the perfect custom rug for their needs in a frictionless, affordable way."
The company noted that the home decor sector has experienced a slew of inventory issues lately, particularly backorders, and that Ernesta will be focused on a “quick fulfillment experience.”
If that is true for Ernesta, it would be a bright spot in a retail sector where supply chain chaos has been normalized. Unpredictable ocean shipment times, price spikes for key raw materials and an initial hike in consumer interest during the COVID-19 pandemic have made the home decor industry tough to operate within.
A drop in consumer demand for home goods as pandemic restrictions began lifting has put many retailers in a tough spot. E-commerce brand Wayfair — which saw success when shoppers were stuck at home — lost one million customers in its recent third-quarter earnings and experienced a 9% drop in revenue. Competitor Overstock also saw a dip in third-quarter revenue, by 33% compared to the same period last year.
The handful of former Peloton execs leading Ernesta aren’t naive to this trend. At Peloton, consumer interest in working out at home skyrocketed during the COVID-19 pandemic as gyms closed. Foley and Kushi in September announced they would exit the company, and several other executives have left as well this year as the brand restructures under its new CEO Barry McCarthy. In its Q1 earnings report this month, Peloton missed revenue expectations with a 23% decrease year over year, and connected fitness subscriptions were near flat from last quarter.
