How GameStop Plans To Turn Things Around

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Video game retailer GameStop has seen better days. In August, the company announced a huge round of layoffs that impacted more than 100 employees, including some members of the Game Informer staff. The company’s stock price is at a near all-time low, trading around $5 per share compared to more than $46 per share back in 2015. GameStop has a plan to turn thing around, and now the retailer has shared more details.

During an earnings call on September 10, GameStop shared more details on what it called the “GameStop Reboot” initiative. The overall aim of this is to “improve the financial performance of the business and implement a series of initiatives that will support the long-term success of the business and value creation for stakeholders.”

“We are committed to acting with a sense of urgency to address the areas of the business that are critical to achieving long-term success and value creation for all our stakeholders,” GameStop CEO George Sherman said in a statement. “We will set GameStop on the correct strategic path and fully leverage our unique position and brand in the video game industry. Our strategic plan is anchored on four tenets which include, optimizing the core business by driving efficiency and effectiveness, creating the social and cultural hub of gaming within each GameStop, building compelling digital capabilities, and transforming our vendor and partner relationships for an evolving video game industry.

“This is a compelling new strategic vision for the company, and we’ve already started to execute against all four pillars. We also remain committed to returning capital to shareholders and balancing that opportunity against the need to maintain a strong balance sheet to properly run our business and invest in responsible growth.”

The four main pillars of GameStop’s Reboot initiative include the following (descriptions written by GameStop):

  • Optimize the Core: Optimize the core business by improving efficiency and effectiveness across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing the global store base.
  • Become the Social / Cultural Hub for Gaming: Create the social and cultural hub of gaming across the GameStop platform by testing and improving existing core assets including the store experience, knowledgeable associates and the PowerUp Rewards loyalty program.
  • Build Digital Platform: Build compelling digital capabilities, including the recent relaunch of GameStop.com, to reach customers more broadly across the omni-channel platform and give them the full spectrum of content and access to products they desire.
  • Transform Vendor Partnerships: Transform our vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer.

Sherman spoke at length about each of the pillars during the earnings call; you can listen to the webcast here to hear everything that Sherman had to say.

GameStop is already moving on its plan to right the ship. Just recently, the company re-launched its website (now with ThinkGeek incorporated), featuring a more streamlined shopping experience that aims to allow customers to find what they want and buy it more smoothly. Additionally, GameStop is testing new pilot stores in Tulsa, Oklahoma. Some of the store concepts are focused on competitive gaming and “home-grown e-leagues.” While other concept stores will exclusively sell retro games and hardware.

Another part of GameStop’s plan to turn things around is to scale down. The retailer confirmed on the earnings call that it plans to close 180-200 “underperforming” stores by the end of the company’s current fiscal year (ending February 2020). The store has 5,700 stores worldwide, so the impending closures–if they reach 200 stores–amount to around 3.5 percent of its total store base. The company added that it expects a “much larger tranche of closures” to follow in the coming 12 to 24 months, though a specific number wasn’t provided.

Management added that it is “rapidly developing a point of view” on how many more stores it will close in the future. The company is taking a “very specific approach” to looking into specific store closures, the company said. Specifically, the company might look to “de-densify” its store base, which means stores with overlapping trade areas might close. GameStop also pointed out that its average store land lease is two years, so the company isn’t generally financially committed to any particular area for an extended period of time.

Don’t expect GameStop to turn things around overnight, however. Sherman said on the call, “This transition will take time.”

As for GameStop’s latest earnings, for the quarter ended August 3, the company saw its total global sales fall 14.3 percent to $1.3 billion. GameStop posted a net loss of $415.3 million for the quarter, which is far worse than the $24.9 million that the company lost during the same period last year.

Every category except Collectibles saw sales decrease year-over-year.

New hardware sales fell a massive 41.1 percent, a downturn that GameStop attributed to the announcement of next-generation consoles coming in 2020. New game sales fell 5.3 percent overall; Nintendo Switch game sales grew, but it wasn’t enough to offset the “weaker title launches” across all systems relative to the same period last year. Accessory sales, meanwhile, fell 9.5 percent, while pre-owned sales fell 17.5 percent. Digital sales fell 11.2 percent “due to weaker title launches.” Collectible sales, however, jumped by 21.2 percent, proving to be the only big bright spot for the retailer.

“While we experienced sales declines across a number of our categories during the quarter, these trends are consistent with what we have historically observed towards the end of a hardware cycle,” GameStop CFO Jim Bell said. “We will continue to manage the underlying businesses to produce meaningful cash returns, while maintaining a strong balance sheet and investing responsibly in our strategic initiatives.”

Looking ahead, Bell said GameStop expects total sales to continue to be down in multiple consecutive quarters to come, as the industry awaits the launch of next-generation consoles in Holiday 2020. He pointed out that both Xbox Scarlett and the PS5 were announced, at least partially, earlier than in the past. This hurt GameStop, he said, because consumers may hold out on buying systems if they know a new one is coming later, while game releases might slow, too, as developers wait to release titles on the new systems.

Source: GameSpot-3