Is GameStop Destined to Collapse?
As it released the results of its fourth quarter and year-end sales and earnings performance last week, the writing seemed to be on the wall for brick-and-mortar video game retailer GameStop Corp. Total global sales for the company fell more than 13 percent during the most recent quarter to just over $3 billion, while its fiscal 2016 numbers dipped 8.1 percent to $8.61 billion.
That news was then compounded by the announcement that the chain would shutter 150 of its 7,500 stores around the globe. GameStop did indicate in its earnings report press release that it planned to close between 2 percent and 3 percent of its global store footprint.
The move is part of a physical store strategy shift that will see the company open approximately 35 “collectibles” stores and 65 new “Technology Brand” stores.
“GameStop’s transformation continued to take hold in 2016, as our nongaming businesses drove gross margin expansion and significantly contributed to our profits, GameStop CEO Paul Raines said in the statement. “Looking at 2017, Technology Brands and Collectibles are expected to generate another year of strong growth, and new hardware innovation in the video game category looks promising.”
As for the revenue declines, GameStop pointed towards weak sales of several blockbuster titles released last year as well as aggressive console promotions run by retailers and manufacturers during the holidays.
All of this news, of course, isn’t a big shocker if you’ve been following any news out of the gaming or retail markets. It’s almost like a lethal one-two combo for GameStop’s core business—one from Amazon hurting in-store sales, the other being smartphones and mobile taking a major chunk out of the console video game market.
But is it really all doom and gloom for the video game retailer?
Their revenue report suggests that it might not be, and it all goes back to the shift in retail strategy. While the company is planning to close a small percentage of stores, their move to open new “collectibles” and Technology Brand locations could provide the jolt they need to truly complete a turnaround.
According to their statement, the collectibles business hit the high-end target of its goal, achieving $494.1 million in fiscal 2016, up nearly 60 percent; the Technology Brands business hit its goal, bringing in $90.2 million, up 216.4 percent over the previous year.
The collectibles locations, which will open this year, essentially function as old school comic book shops without the comic books. Collectible items include things like plus dolls, posters, busts and statues, action figures, cards and board games, those popular Pop! vinyl figures, and more. The Technology Brand business is essentially GameStop’s foray into other physical retail brand locations like Spring Mobile stores, Cricket Wireless locations, Simply Mac stores.
Stop Gap Solutions
The promise of the new business model for GameStop is somewhat comforting, but it really just feels like they’re plugging a hole in a winking ship with their thumb. It might work for now—and clearly is working given those revenue jumps—but how long will that last?
Of the two new businesses, the Technology Brand stores probably has the best outlook.
“Sensing the winds of change early on, GameStop acquired several smaller complimentary retail chains in recent years to mitigate its reliance on the physical games business,” SuperData Research CEO Joost van Dreunen said in an email to Dealerscope, explaining the new model. “A case in point was the unexpected success of the sales of smartphone battery packs and additional AT&T data plans during last summer’s Pokémon GO craze.”
The unfortunate part about GameStop’s future as a video game retailer is that it is almost exclusively tied to the industry itself, which has been struggling in recent years. Consumers just haven’t been all that excited about new products and software. Nintendo, it seems, has finally found success with the launch of the Switch, and PlayStation continues to do well with their consoles and software.
“With approximately 1 million units of its PSVR sold worldwide (end of March, 2017) and an effective bundling strategy, Sony has been the best-selling console in the US in the last four months,” Joost said. “Another positive driver for GameStop is the initial success of the Nintendo Switch, which is on track to deliver on its promise sell about 2M units by the end of March.”
But a console and a half isn’t quite enough to keep an entire retail chain afloat. We are also in the middle of the console lifecycle when it comes to the Big Two (Xbox and PlayStation), so consumers aren’t coming out in droves right now to drop money on new systems.
So, for now, we’re in a wait-and-see kind of mode with GameStop’s new strategy. But it is still too early, if you ask me, to say the video game chain is destined to fail.