Late last week, retailer GameStop announced that it will be shuttering between 180 and 200 unprofitable physical locations. The firm also indicates that it plans to carry out the closures within the next six months and will wind down even more stores in the next 12 to 24 months. Throughout the past year, the firm reduced its number of brick-and-mortar shops by 195.
Currently, GameStop operates 5,700 stores worldwide.
GameStop’s Financial Woes
Predictably, the corporation has attempted to frame the recent contraction of its retail footprint as a positive. In an investor call, the firm’s CFO Jim Bell called the store closures a necessary step to optimize the company’s operations. He noted that a strategic “de-densification” of its shops in specific markets would bolster profitability.
The executive also claimed that 95 percent of the retailer’s stores are in the black.
However, GameStop as a whole hasn’t been doing well for quite some time. In its last quarterly report, the corporation revealed that its sales were down 14.3 percent year-on-year. Worryingly, the company’s core businesses have fallen off significantly since 2018. The firm’s hardware division has plunged by 41 percent while its software sales have declined by 5.3 percent. Meanwhile, the once-massive pre-owned product segment has tumbled by 17.5 percent.
However, the corporation’s collectibles division increased by 21 percent year-on-year, marking its 15th consecutive quarter of growth. As such, the firm’s decision to shutter its ThinkGeek subsidiary website in July and bring its products under the GameStop banner now makes more sense.
Nevertheless, nerd-centric merchandise sales can’t compensate for the fact that the company’s business model is becoming outdated. For years now, big video game corporations have trained their customer bases to buy and stream new titles from their digital storefronts. To thrive in the new paradigm, GameStop needs to change how it does business.
CEO George Sherman has some ideas on how to do that and outlined them during a recent earnings call.
GameStop’s Revival Plan
Sherman has a multipronged strategy to revive the video game retailer’s sinking business.
First off, the executive has taken steps to keep the corporation’s stores from competing with one another. Indeed, Business Insider notes that the firm operates too many stores in the New York City area for them all to be profitable.
Sherman also said that he wants to reduce the number of products that each location stocks. He wants to instead ensure that every GameStop location maintains an inventory of the most in-demand, profitable items.
The executive also outlined plans to draw in more consumers with more game demos and in-store events. As an example, the company wants to stage viewings of high profile esports events in its retail locations. Sherman notes that he intends to utilize the corporation’s “50,000-plus knowledgeable associates better.”
The executive explained that he’s developing a new sales model wherein console makers will better “reward” GameStop for moving their products. However, Sherman declined to elaborate on how the new compensation framework would function. Ars Technica suggests that the company might demand a bonus from its suppliers for each new piece of hardware sold.
He also notes that the corporation’s revenues will bounce back in 2020 as the ninth generation of video game consoles goes on sale. However, he didn’t account for the fact that those games systems will likely be subjected to a new 25 percent import tax.
Hopefully, George Sherman’s revitalization plans will help GameStop reclaim its former prominence. Otherwise, the notion of low-priced used games will soon become anachronistic.