Trump leaves office. He loses his social media privileges. And just like that, there’s a void in the world of crazy. GameStop to the rescue. Crazy on so many levels. It’s more than a David/Goliath saga of Redditors versus Wall Streeters. It’s the story of reality versus the both of them. And it’s a cautionary tale both for fabulists and for those who believe they’ve got two feet firmly on the ground.
If you watched SNL last weekend you saw Kate McKinnon (playing herself) asking “What Still Works?” One of her examples of the inexplicable way that our trusted institutions are broken was an interview with Pete Davidson playing the fictitious role of majority GameStop shareholder Derrick Boner. “Two weeks ago GameStop was valued at $17 a share. And then it went to $423 a share. Would you say” she asks earnestly, “that this reflects the kind of business GameStop stores have been doing in the past two weeks?” Befuddled by the question, Boner doesn’t comprehend any relationship between the daily mechanics of being bad at selling games in stores and the hockey puck trajectory the company’s stock took in the market shenanigans.
Even the most ardent gamers I know haven’t darkened the door of a GameStop in years. Its white and red logo evokes a nostalgia for the way things were. In the malls, GameStop is one of the pearly gates to the graveyard of yesteryear’s stores. Pundits have been predicting it was just a matter of time before GameStop followed in the footsteps of Toys “R” Us, Blockbuster and Radio Shack – once-loved but now empty curiosities of a bygone era.
I reached out to my networks. One Twitter friend could only recall that his 14th Street NYC GameStop store’s only recent noteworthy activity was being looting during racial violence-related rioting early in 2020. (A reminder that something behind its doors had value?) A Dallas reader reminded me that GameStop began its life in Texas as “Babbage’s” in 1984. Her company, 7th Level, sold DVD multimedia games in the store successfully through the mid 90’s. ”It’s been at least 15 years since I’ve bought anything from them.” she reminisced. “They got stuck in time.” An SF reader, Josh Weinberg, recalls taking his kids there to buy and sell old games. Sort of like a gamer’s thrift shop–not an easy business to sustain.
Still, GameStop was far from a loser. It spent 14 years on the Fortune 500, securing its place, most recently, in 2020, at a respectable “I’m still here, No. 464.”
Meanwhile, its profits began to look like a musical score, but in the last few years one for only the deepest bass notes. GameStop recorded a loss in eight of its past 10 quarters. Its pre-pandemic 2019 was genuinely horrific.
I’m going to leave the shorts and longs and market squeezes to those with more aptitude for such conversation than I. For me, GameStop is a cautionary tale that every retailer faces as the ecommerce Hydra rears its head. (Keep in mind that ecommerce still only accounts for approximately 15% of total retail sales, even in a year when almost no one could walk into a store!)
GameStop gets bonus points for effort. It instituted a points/loyalty program rewarding frequent gamers. It created a strategic alliance with Microsoft for store pickups on sales of the new Xbox. (If only there was an Xbox launch every week!) It offered trade-ins on aging products and partnered with Think Geek to sell collectibles. But none of these efforts can compensate for the fact that most games are now downloaded, not DVD-based, and that in order to succeed, the physical store had to think really differently.
George Sherman, the company’s would-be turnaround artist, became CEO at the its 2019 low point. Had the pandemic not forced all stores to close in April of 2020, he might have stanched some of the bleeding. The first three quarters of 2020 saw GameStop’s sales fall 31%, leading to a loss of $296 million. Sherman closed 400 of the 5,000 stores. He was putting his efforts into e-commerce and thinking about bringing in-store gaming events and community to the party. He and the executive staff would take a temporary 50% pay cut, according to this SEC filing. And there were plans to close even more stores in 2021.
A more nimble GameStop would have seized more opportunities to capitalize on a booming pandemic games business. GamesBeat’s lead writer, Dean Takahashi, told me that the gaming market saw a 19% increase during the pandemic.
Would you have bought a console using curbside pickup at the store? Would you have traded in your old game for anything fresh? Paid for a GameStop subscription so you could meet friends, play with family members and win loyalty points? Traded collectibles with friends? Bought an Oculus or AR glasses just to experiment with new worlds? (Most stores did not even sell next-gen equipment.) With the demand for games at an all time high, GameStop could have been the local hub for lockdown gaming junkies and wannabes. A missed opportunity, indeed.
“It’s been a constant real-estate game for them to try to get out of leases,” said Takahashi, “and while the online part of the business was actually working out well, it doesn’t make up for the fact that the physical stores were in decline.”
Kyle Orland, Ars Technica’s game editor, agreed. Via email he told me, “I agree (with most analysts) that GameStop may have been slightly undervalued at the $5-$10 price level, but all the analyses suggesting there is a “fair” value of above $100/share based on the business fundamentals seem pretty pie-in-the-sky to me. GameStop could still pivot to a much more digital-centric business and survive in some form, but I think it will not be as easy as some bullish investors suggest.”
In real life, GameStop has too much physical retail space, an aging product line, a dearth of experiential retail, a pandemic, and an inability to migrate to ecommerce quickly enough to hold much promise. New gaming stores — experiential ones that cater to emerging markets like VR, e-Sports and AR will appear. Regardless of what happens with the market, I’m sorry but GameStop is not likely to be on that list.
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