John Foley spent the better part of this year reflecting on what made Peloton, the buzzy purveyor of gamified stationary home exercise bikes and treadmills, such a success. The disruptive, multibillion-dollar fitness brand he founded a decade ago resonated with consumers thanks to its focus on digital content and a fitness-meets-gaming aspect that ingratiated customers desperate to forge human connections during quarantine. Though Peloton was seen as a pandemic darling, sales floundered as life returned to normal and gyms reopened. A major restructuring eliminated thousands of jobs. Its stock tumbled, showrooms closed, and inventory piled up in warehouses.
Having resigned as CEO in February and executive chairman in September, Foley is returning to the direct-to-consumer space with the launch of Ernesta, a rug brand co-founded with former Peloton staffers Hisao Kushi and Yony Feng. Slated to launch in the spring, the company plans to sell 50 styles of custom-cut, machine-made rugs in five colorways at prices comparable to West Elm and CB2. Much like its community-minded predecessor, Ernesta—the name is a mashup of Ernest Hemingway and “Nesta,” Bob Marley’s middle name—will encourage buyers to engage with the brand on social media by posting before-and-after shots of material samples and transformed spaces.
“It feels like everyone in the world sells rugs,” Foley tells Business of Home. “The problem is, so few people focus on just rugs and bringing to market what the consumer wants, which is speed and quality and value and focus. I think Ernesta has the opportunity to be a category of one.”
Few may have predicted a pivot from exercise bikes to rugs, but Foley’s passion for interiors runs deep. He has long clipped pages from shelter magazines and developed an interest in floor coverings—particularly how a “big, grand, and beautiful” carpet can transform a space—when collaborating with a designer on his home on Long Island. While rugs are more niche than home fitness, Kushi views Ernesta’s potential in plain terms: “Rugs might seem like a potentially uninteresting category, but there’s probably at least one in your house.” The numbers back that up—residential rug sales are estimated to reach $25 billion by 2030, and more than 100 million rugs are sold in the U.S. each year.
The venture has already secured $25 million of Series A funding from Addition, whose leader, Lee Fixel, was one of Peloton’s early backers and board members. But the formula for creating a successful DTC brand isn’t so cut-and-dry anymore. Record inflation, supply chain woes, and import costs have all ballooned, eating into the margins of businesses that once relied on offshore production. (Jason Bornstein, principal of Forerunner Ventures, even said that going DTC is “no longer sufficient business model innovation” to attract investors.) Add the spiraling costs of Facebook ads and Apple’s stringent iOS privacy changes into the mix, and new DTC brands are finding it hard to track performance and find new customers.
To combat this, Foley plans to cultivate relationships with stateside mills to manufacture Ernesta’s rugs, forgoing physical retail and wholesale partners to sell exclusively online. He’ll also avoid pouring money into Apple and Facebook, relying on tried-and-true TV advertising to get Ernesta’s name out there. Foley also believes Ernesta is well-poised to survive a looming recession, which usually stokes value-conscious spending. “I want to show discipline, I want to show profitability, and have a real focus on unit economics,” Foley tells Forbes. Most important: “I want to control my own destiny.” Whether he can make it work remains to be seen.
