(Bloomberg) -- Peloton Interactive Inc. shares rose as much as 11% Thursday after the company agreed to a deal with Lululemon Athletica Inc. to tap its online workouts and team up on apparel. 

As part of the accord, announced Wednesday, Lululemon will make co-branded clothing that Peloton will sell on its website and at retail stores. Peloton’s fitness content, meanwhile, will be offered to users of the Lululemon Studio Mirror, a $995 device that lets people work out in front of a 43-inch screen, and the apparel maker’s free digital app.

Mirror subscribers, who pay a $39-a-month fee, can also take classes using a smartphone or tablet app — and the Peloton sessions will be added to existing Lululemon content for that plan. Under the arrangement, Lululemon will stop producing its own exercise videos next year and won’t feature material from third parties.

As a result of the partnership with Peloton, Lululemon laid off about 120 people who work on Lululemon Studio, which produces the fitness content, a company spokesperson said. The company employed about 34,000 people as of January. 

Peloton shares were up 5.6% as of 3:41 p.m. Thursday in New York, while Lululemon shares were little changed.

In a new development, Lululemon also plans to stop selling the Mirror hardware by the end of 2023. At that time, the digital companion app — including the combined Lululemon and Peloton content plan — will be discontinued for new users. That means the agreement will be more about servicing existing customers.

Users will start seeing the changes on Nov. 1, and Peloton will also provide content for Lululemon’s free Essential app tier. 

At the same time, Lululemon is discontinuing a relatively new digital-only subscription that costs $12.99 a month — a service that competes with a Peloton plan called App One and Apple Inc.’s Fitness+. Lululemon will push users toward the Peloton app as part of the arrangement.

Peloton executives Dion Camp Sanders and Jennifer Cotter said they believe the deal reinforces Peloton as the “clear leader” in connected fitness, and that the partnership will help drive traffic to its retail stores and fuel sales of hardware. In addition to offering its trademark exercise bikes, Peloton sells treadmills, rowing gear and other equipment.

Though Lululemon will keep offering service and support for the Mirror indefinitely, the pact helps it move on from a difficult business. The device had been a cash burner for the company, which has laid off employees working on its device and content. 

The Vancouver-based company tried to offload the Mirror unit earlier this year, hiring an adviser to solicit interest in acquiring it, Bloomberg News reported. Lululemon also has written down most of the value of the Mirror business, which it bought in 2020 for $500 million. 

Mirror users who continue to pay the $39 per month fee will get access to thousands of Peloton classes, in addition to longer-form videos and series, while the free app will provide a smaller array of content from Peloton that will expand over time.

The free app has nearly 14 million users, but Lululemon declined to say how many Mirror subscribers there are.

As part of the apparel deal, Peloton will begin selling co-branded clothes on Oct. 11, the companies said. That rollout will start in the US, UK and Canada, and expand to Australia and Germany by March. Peloton instructors will also wear the co-branded clothing in future video content. In addition, the companies plan to team up on a series of in-person community events.

The two companies have taken divergent path since the pandemic. After thriving during early Covid-19 lockdowns, Peloton has struggled to bounce back from a slump. Chief Executive Officer Barry McCarthy, who took the helm early last year, has been striking accords with other major brands in an attempt to return to growth. He previously reached deals with Amazon.com Inc. and Hilton hotels.

But the company’s latest quarterly revenue outlook came in well below expectations last month. In addition to suffering a slowdown in equipment sales, Peloton has struggled with product recalls.

On Tuesday, Peloton said that its last remaining co-founder on staff, Tom Cortese, will be exiting from his role as chief product officer. It’s replacing him with technology industry veteran Nick Caldwell, who has experience in online platforms. 

Lululemon — less tied to the home-fitness craze that boomed during the pandemic — has fared better in recent years. In August, the company reported comparable sales growth of 11% and said that it’s continuing to gain market share from lower-cost retailers.

--With assistance from Olivia Rockeman.

(Updates with Lululemon comment about layoffs in fourth paragraph. A previous version of the story corrected the spelling of Lululemon in the second deck headline.)

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