Major gaming retailer GameStop says it will be closing “between 180 and 200 underperforming stores” in the next six months. That statement comes following 195 store closures in the last 12 months and what the company says it expects will be “a much larger tranche of closures over the coming 12 months to 24 months.
While that might seem like drastic news at first glance, even hundreds of store closures could have a relatively small impact on a chain that still has 5,700 locations worldwide. And GameStop CFO Jim Bell said in a recent earnings call that 95 percent of those stores still show positive earnings, suggesting the bottom hasn’t totally fallen out of the chain’s locations across the board.
GameStop is spinning the current set of closures as an effort to “optimiz[e] the store portfolio” through “de-densification” in certain markets that have multiple stores serving “overlapping trade areas.” That said, it’s always a bad sign when a retailer is planning on closing stores instead of opening new ones. And for GameStop, it’s a sign that comes after months of bad news, including major layoffs, executive departures, a failed corporate sale attempt, cratering earnings reports, and a stock price that continues to tumble.
The company’s latest quarterly earnings report didn’t include much that would suggest an imminent turnaround. Losses were more than triple what they were for the same period a year ago, and sales were down 14.3% year-over-year (or 11.6% when you factor out stores that were closed in the interim). That includes a 5.3% reduction in software sales, a 17.5% reduction in pre-owned sales, and a whopping 41% drop in hardware sales. The only bright spot was collectible sales, which were up 21% to represent the 15th straight quarter of growth in that category.
As of this writing, GameStop stock was down 8.5% from Monday’s close to a price of $4.65. That price is down over 70% from a year ago and off roughly 92 percent from a high point in late 2013.
Bell admitted in the earnings call that these are “results that admittedly were below what we would want,” and warned investors to “expect our year-over-year sales to be down over the next three or four quarters.” But the company also remained hopeful that things would start to turn around late next year, when players would come to GameStop for new consoles from Sony and Microsoft (both of which, Bell pointed out, have disc drives that could help drive additional retail game sales).
“In our view, our current sales performance reflects the natural end of console cycle that will rebound with console launches later in 2020,” GameStop CEO George Sherman said.
The turnaround plan
GameStop isn’t just counting on new hardware to buoy its bottom line, though. On the earnings call, Sherman outlined a multipoint plan to burnish the company’s “credibility with customers as the only retail outlet for the aggregation of all things video gaming and pop culture… [and] the video game authority in countless neighborhoods around the globe.”
The first point in that plan is becoming more efficient. That means closing stores but also streamlining the number of products (or SKUs) in each location to focus on those that can be “highly productive… from a demand perspective.” In other words, expect fewer examples of niche games and collectibles on the shelves going forward.
Beyond just selling games, though, GameStop wants to transform itself to create “a social and cultural hub of gaming within each GameStop store.” That means testing more “try before you buy” experiences in stores, planning in-store gatherings around esports viewing, and creating other “high margin immersive experiential gaming content” designed to bring gamers together in a physical space. Not every GameStop location will be completely remodeled by this initiative, but key locations in certain markets will be testing out more and more ideas along these lines, Sherman said.
The most interesting pillar of GameStop’s turnaround plan, though, might be its efforts to leverage its sales force into better partnerships with console makers. “Our 50,000-plus knowledgeable associates worldwide remain the only full-time dedicated sales force in the video game industry,” Sherman said, highlighting how those sales associates can “bring an enormous amount of value to console makers.” Sherman said that GameStop is working with those console makers to create a new sales model that “rewards us across the customer acquisition and lifetime value spectrum.”
That’s all pretty vague, but it sounds like GameStop is looking for a better deal from console makers when it comes to pushing their hardware—one that perhaps reflects all those digital sales the console maker will get after the buyer takes the console home. It’s easy to envision GameStop pushing for new deals where each console maker gives the retailer (and its sales associates?) a bonus for selling their hardware instead of the competition. Maybe GameStop could play the console makers against each other in this, asking each one to provide better “motivation” for its sales force to sell its specific console.
That’s just a fun bit of speculation for now, of course. What’s clear, though, is that GameStop is not giving up without a fight, and it seems willing to leverage its existing scale and sales force to try to help revive a moribund business based around selling games on discs.