GameStop is one of the largest video game retailers in the world. The company has been selling video games for every gaming system, gaming hardware, as well as gaming merchandise since its inception in 1984. GameStop boasts more than 5000 locations across the world. It does seem like a power house of a company at first glance, but the GameStop’s shares fell from $16 a share in January 2019 to just $5 in July 2019. So, what is bringing the decline for this huge business? Well, it is exactly the same case as Netflix vs Blockbuster.
GameStop’s main business is in selling physical copies of video games on physical carriers (discs, cartages, etc.). However, just as with every other information good, it is much easier, and in many cases even cheaper, to get it online. Every single gaming platform operates its own digital storefront through which it sells its games. Sony, Microsoft, and Nintendo sell games to players directly from the gaming consoles they already need to play said games, essentially taking full control (and value) of their respective platforms. PC gamers on the other hand, have access to multiple digital stores which makes the competition even fiercer.
GameStop is having a harder time to compete with digital retailers for several reasons, the most important of which is – it is still tied down to its physical locations. The company does not operate on a franchise model and owns all of its stores. This is tied to huge costs in terms of real estate, logistics, and staff. None of the competitors have these issues. George Sherman, the newly-elected CEO of GameStop said to the CNN: “the company is in a tough place and needs to make some changes”. The first of those is to close down more than 200 locations by the end of February 2020. However, a lot more needs to happen in order to keep the company relevant.
One piece of good news for GameStop is that the next generation of Xbox and Play Station, said to be announced in 2020, will still come with a disc reader. This means that physical copies of games will not abruptly stop existing next year. The main profit generator for GameStop will still remain video games but the company still needs to innovate in order to stay alive. Sherman is correct in saying that “the gaming business is a bit of a hits business”. There will still be traffic at GameStop stores when a hot new game comes out but the main problem for the company in the coming years will be to keep this traffic going even after major releases. One possible solution would be to work closer with Sony, Microsoft, and Nintendo. Although direct competitors with their own digital stores, they can still remain key partners in terms of marketing and promotional efforts.
Will GameStop disappear like Blockbuster or is there still room for a physical storefront for video games in an increasingly digital world? It is still not to late for the company to save its business but digital threats are becoming more powerful than ever. Not to mention the potential that video game cloud streaming has on the whole industry, both physical and digital. Cloud-based services like Google Stadia might turn the whole industry on its head with subsections instead of purchases. But this is a whole other conversation…
References:
GameStop CEO says company is in ‘a tough place’ and needs to change, Shannon Liao, 2019, https://edition.cnn.com/2019/09/12/tech/gamestop-ceo-interview-layoffs/index.html
GameStop already plans to close up to 200 stores but could soon close even more, Sarah Whitten, 2019,
https://www.cnbc.com/2019/09/16/gamestop-is-closing-up-to-200-stores-and-could-close-even-more.html
We went on a tour of New York City’s GameStop stores to see if the company is doomed to become the next Blockbuster Video – read what we found, Ben Gilbert, 2019, https://www.businessinsider.nl/gamestop-failing-store-tour-shows-flawed-business-2019-8?international=true&r=US
The world’s largest video game retailer, GameStop, is dying: Here’s what led to the retail giant’s slow demise, Ben Gilbert, 2019, https://www.businessinsider.nl/gamestop-worlds-biggest-video-game-retailer-decline-explained-2019-7?international=true&r=US
