Just a couple of years ago, gamers all over the country would gather outside of GameStop stores to be at the front of the line for a new video game release.
Today, the crowds aren’t as long thanks to the popularity of digital games purchasable online.
Sure, you may need to wait for the game to download, but you won’t have to fight through Black Friday crowds.
What does this change in consumer trends mean for GameStop as an organization?
Many people assume that the transition to digital media may cause GameStop to go out of business.
It doesn’t help that their public finances don’t paint a clear picture of success.
In this article, we will cover the topic in detail by discussing 10 things to know about GameStop’s future in the digital era and whether they will go out of business.
Is GameStop Going Out Of Business? (10 Things To Know)
1. Rise Of Digital Gaming
Video game buyers prefer to buy games digitally these days.
Digital gaming refers to the convenient gaming method of purchasing games online instead of buying physical game discs or cartridges.
You can find online games for every video game console and computer.
Many games also come in an app format for tablets and smartphones.
The digital game industry generated $152 billion worldwide in 2019 with console game sales making up about 32% of all sales.
GameStop’s rocky numbers began in 2013 when, not coincidentally, Microsoft and Sony released new gaming consoles with simple digital stores.
Digital vs. Physical Discs
Not only does buying games digitally allow you to avoid making a trip to the store, but you also don’t have to worry about losing or scratching the disc.
However, you can’t return digital games.
Furthermore, you can lose the game (along with all of your other games) if you damage or lose the storage device.
You also need to make sure that you have enough space on your gaming system or hard drive to store all of your games.
Game Streaming Services
Not only can you download the latest games, but many services are now offering game streaming services, similar to video streaming platforms like Hulu and Netflix.
Members get access to all of the games on the streaming service for a nominal monthly fee.
For example, PlayStation Now is only $60/year and comes with 800 games.
Why buy individual games when you can sign up for a streaming service?
Well, the streaming service may not include the latest games.
However, there’s more than enough quality content to keep any gamer entertained for a long time.
2. New Sales Strategies
GameStop generated a significant amount of its income from the purchase and resale of used games.
GameStop buys used games from customers at a heavily reduced rate, depending on the popularity and availability of the game in question.
Customers can get more for their used games if they take store credit as opposed to cash.
After buying the used game for a fraction of the price, GameStop resells it to other customers.
This business model has proven to be successful for GameStop for a long time.
However, this system depends on the purchase and resale of physical games.
Since more people are buying games digitally, they don’t have the ability to resell the game back to the store.
In order to remain sustainable in a digital age, GameStop needs to create a new strategy that emphasizes digital sales and alternative ways of making money.
Luckily, GameStop appears optimistic, despite a couple of bad years.
In order to shake things up, GameStop announced in June of this year (2021) that they appointed a new CEO named Matt Furlong.
Furlong previously worked for Amazon and specializes in eCommerce, making him the ideal person to create more online sales for the company.
3. GameStop Stock Is Fluctuating
With the drastic changes happening in the gaming market, many people looked to GameStop’s stock value to learn more about how well the company is doing.
However, the recent stock prices can make anyone even more confused than they were before looking at them since GameStop’s prices have fluctuated quite drastically.
After some serious losses, GameStop dramatically came back on the scene early this year with shares reaching $347.51 in January then quickly dropping down and maintaining at about $245 for the remainder of the year.
While this looked like good news for the company, many experts think that the numbers may not provide the full story and may be overvalued.
At the very least, experts believe that the rise points to short-term success and may not be indicative of long-term sustainability.
Due to the instability, the trading platform Robinhood restricted the purchase of GameStop stock, causing some people to claim Securities Arbitration.
However, an investigation by the SEC declared that everything appeared to be legitimate.
Today, the stock is at $241.34, meaning that they managed to maintain their evaluation for more than eight months.
We will just have to wait and see.
However, it’s a risky bet.
4. GameStop Has A Digital Store
Considering the rise in digital gaming, GameStop naturally decided to offer digital games for customers.
You may not know, though, that GameStop launched its digital store 11 years ago.
However, GameStop can only offer so much to its customers.
In the GameStop digital store, you can purchase gift cards to different video game company online stores, including:
- PlayStation Store
- Nintendo eShop
In 2019, Sony announced that it would no longer allow outside retailers, such as GameStop, to sell digital download codes.
To maintain positive relationships with the video game developers, GameStop only sells gift cards to those developers’ stores as opposed to the codes themselves.
In the second quarter of 2020, digital sales accounted for 20% of all of GameStop’s sales, meaning customers did utilize the service.
However, why would someone buy from GameStop instead of purchasing games and gift cards through the original retailer?
5. Benefits Of Shopping Through GameStop
In order to remain relevant, GameStop must provide special services that you can’t get when you shop through Nintendo or PlayStation directly.
A. Exclusive Deals
GameStop must adhere to a gaming company’s pricing in some cases, especially when it comes to new releases.
However, GameStop has the ability to set its own pricing in some situations.
You can find “Buy One Get One Free” sales.
You can also sometimes find lower prices than you can find at other retailers.
The deals really stand out when you go through the pre-owned games, which many gaming companies don’t sell.
B. Knowledgeable Staff
Not everyone is as knowledgeable about video games as the average GameStop customer.
You may want to start gaming as a hobby or buy a present for a friend or family member, but you don’t know anything about the latest releases.
An experienced and knowledgeable GameStop associate can answer your questions and even provide you with suggestions.
C. Preference For Physical Games
Some people don’t want to buy games online for numerous reasons.
If you are buying an unfamiliar game, you may prefer a physical game so that you can try it out and potentially return it if you don’t like it.
Most digital games are sold “as is” with no option for a return to reduce the likelihood of pirating.
Gamers with limited funds may also prefer the sale options and lower prices of preowned games.
D. Gamer Community
The digital age allows us to speak to people online. However, there’s nothing quite the same as face-to-face human interaction.
GameStop creates a community for gamers.
When these gamers, who may not always feel included in other stores, walk into GameStop, they walk into a comfort zone with like-minded people.
GameStop may want to consider local events and becoming somewhat of a gamer’s club to encourage people to continue to buy from them.
E. PowerUp Rewards
If you shop at GameStop regularly, you may benefit from a GameStop PowerUp Rewards Membership.
Membership costs $14.99/month for access to all digital issues of GameInformer magazine.
If you prefer physical copies of new issues, the membership costs $19.99/month.
Along with the magazine subscription, you also get the following benefits:
- $5 monthly reward
- Extra trade credit
- $10 for signing up
- Early access to select games
According to The Washington Post, GameStop’s PowerUp Rewards program creates the greatest value for both customers and the retailer.
It currently has 60 million members.
6. GameStop Stores Are Closing
At the end of 2020, GameStop announced that they planned to close 1,000 stores by March of 2021.
GameStop’s CFO Jim Bell explained the reasoning behind the closures, saying the move “will allow us to more efficiently and profitably service our customers.”
It appears that the overhead expenses associated with maintaining the stores aren’t worth keeping them open in a lot of locations.
While many people see the store closings as a warning sign that GameStop is doomed to become the next Blockbuster, it may indicate something a little more positive.
Closing stores means that GameStop isn’t planning to give up.
Quite the opposite, GameStop appears to be restructuring itself in an attempt to regain the massive losses they’ve experienced.
GameStop reported a staggering loss of $485 million in 2018 and $83 million in 2019.
The last year they saw a profit was 2017.
See the GameStop store locator page to learn if you still have a GameStop near you.
7. GameStop Made Poor Investments
We all bet on the wrong horse from time to time, making it especially important to diversify investments so that if one turns out bad, you still have the other investments in place.
Unfortunately, GameStop seems to have bet on the wrong horse quite a bit.
A. Spring Mobile
In an attempt to stay relevant and branch into a somewhat similar industry, GameStop bought 90 Spring Mobile locations with plans to take over the cellphone game.
However, they didn’t anticipate exactly how competitive the market was.
Most people already have a cell phone.
When they need to upgrade, they will probably go to their cellphone provider instead of GameStop.
Furthermore, people are holding onto their cell phones for longer.
Ultimately, the ambitious plan turned into a financial disaster.
GameStop recently sold Spring Mobile to Prime Communications to eliminate the burden and focus on video games.
ThinkGeek was a retail brand specifically aimed toward geek culture.
They typically sold toys and nerdy items, such as computer parts.
Unfortunately, ThinkGeek didn’t gain enough of a following to stay afloat.
The website they used to sell their products shut down in 2019.
You can still find some limited products on GameStop’s website and in their stores, but the options are limited.
C. Vice President Stole Millions
Sometimes, a company makes a bad investment in a person as opposed to a company.
GameStop’s bad investment was a man named Frank Olivera who managed to become vice president.
In 2012, a scheme unraveled that involved Olivera billing GameStop as a fictitious vendor called Cloud Communications then keeping the payments (on top of his already substantial salary).
In the end, Olivera managed to acquire $2 million.
He would get caught and sentenced to four years in prison.
8. Losses Affect Salaries
As GameStop experiences hard times, everyone needs to sacrifice, including executives and board members.
Recent losses mean that GameStop can’t afford the high salaries they used to pay.
In fact, individual directors will see a 28% pay cut from the year before.
Unfortunately, the pay decrease and store closing can create panic and low morale among the 17,000 part-time employees and 1,200 full-time employees.
In order to combat poor morale, GameStop provides perks to employees:
- 50% off AT&T cell phones
- 15% employee discount (25% on clothing)
- 401(k) Plan
- Paid holidays
- Health insurance
It also doesn’t hurt to work for a video game company if you happen to love video games.
You’ll get to talk about something you love all day.
Of course, that’s assuming the GameStop store you work at stays open.
9. Lack Of Funding
You probably heard the phrase that you need to spend money to make money.
Unfortunately, GameStop hasn’t had a surplus of cash flow to invest in its business practices.
Advertising gets customers into stores. How else would we know when the McRib is back at McDonald’s?
GameStop’s limited funding means that they didn’t release a lot of marketing material, such as commercials.
They only created three new ad campaigns in the last year, spending less than $100 million.
In comparison, Walmart spent $2.42 billion on advertising in 2020.
A company’s marketing budget only works if they establish an effective marketing strategy that includes commercials, print ads, and digital marketing techniques, such as search engine optimization (SEO) and email marketing.
For a video game company, GameStop was surprisingly behind when it came to technology.
For example, many customers complained about the online store for glitches and difficulty making payments.
While they do take PayPal, they do not take popular up-and-coming payment methods, such as Apple Pay and cryptocurrency.
In order to upgrade the company, they plan to invest in upgraded systems.
10. GameStop Isn’t The Only Company Affected
The reduction of in-store shopping hasn’t only affected GameStop.
It’s affected other well-known brands that may surprise you.
The following companies closed stores in 2020 in what some people refer to as the retail apocalypse:
- Bath & Body Works: 50 stores
- CVS Pharmacy: 22 stores
- Macy’s: 30 stores
- Kmart: 45 stores
- Sears: 51 stores
- J.C. Penney: 204 stores (2 years)
- Gap: 230 stores (2 years)
While the situation appears grim, it’s best to see the change as an opportunity.
Many of these stores can change their business plan to adapt to the new digital times and provide the modern products that customers want.
However, that can be more difficult than you might anticipate.
GameStop still has a large presence in the video game industry.
However, with the transition to digital gaming, many people wonder how long the organization can stay afloat.
The company continues to seek successful ventures outside of the video game industry, with most of them ultimately flopping.
However, this ambitious and open-minded philosophy to change indicates that, with the right idea, they can find their place in the modern retail market and thrive for generations.
However, I’m not buying quite yet…