GAME OVER?
DESPITE ROCKETING STOCK PRICES, ANALYSTS AND GAMERS SEE BLEAK FUTURE FOR GAMESTOP,
IT’S ESSENTIALLY BECOME A PAWNSHOP, AND EVEN THAT BUSINESS MODEL IS DECAYING. HOW MUCH LONGER ARE YOU GOING TO GO BUY ‘CALL OF DUTY’ ON DVD? YOU CAN SEE THE BRICK WALL AT THE END OF THE TUNNEL. — STEFANO SCALIA, DIGITAL MARKETING EXECUTIVE
Over a recent weekend, a Gamestop store in Maryland illustrated the disconnect between the Wall Street hysteria that has sent its stock price to dizzying heights, and the video game retailer’s real-world struggles.
The Greenbelt, Md., store was void of customers Saturday afternoon save for a preteen boy and his mom browsing the orderly rows of games, most bearing “preowned” stickers. demo stations for “death Stranding” and “Super Mario Maker 2” were dusty and dormant. The clearance tower was packed with mood lights, sundae-shaped pool floats and Funko Pop! figurines of Conan O’brien and duran duran singer Simon Le bon.
“It’s been totally normal,” a cashier in a Zelda Tri-force T-shirt said as he scanned trade-ins.
Ordinary investors bingeing on Gamestop, spurred on by a reddit message board, have sent the stock up eighteenfold since december, rattling the Wall Street hedge funds that were banking on the shares to lose value. The stock’s epic run is largely divorced from the fundamentals of the business: Gamestop’s profits rely heavily on its used-game business, though in recent years it has expanded its offerings of collectibles and novelty merchandise. but analysts say those efforts have made the company even less relevant and have alienated loyal gamers.
The retailer reported a us$19 million loss in the most recent quarter, even as the ongoing pandemic helped lift the overall industry to record highs. Sales have fallen for 10 of the past 11 quarters, with the most pronounced declines occurring in 2020, when the overall sector grew 26 per cent, according to NPD Group. Gamestop has not turned a profit since 2017 and has gone through five chief executives in that time. Its current CEO, George Sherman, who formerly led Advance Auto Parts and best buy Services, took over in April 2019.
Since then, the retailer has closed more than 1,000 stores, with plans to shutter more in the coming months. About 5,500 stores remain, many of them in shopping centres and strip malls that are facing their own reckoning as the pandemic enters its 11th month.
“The stock price is zooming in one direction, and the fundamentals are going the opposite way,” said Anthony Chukumba, an analyst for Loop Capital who predicts that the business could be gone within 10 years. “Mark my words: This will end badly. This company is not worth even a fraction of what its stock is worth right now.”
Gamestop’s stock is up more than 1,200 per cent this year, from about us$17 a share to about us$347 in late January before falling back to about us$90 early last week. One year ago, it was trading at less than us$4.
but analysts say neither the recent hysteria nor constant headlines will have much effect on the business. unlike AMC entertainment — another shorted company that saw its stock shoot up, then raised us$305 million by selling new shares — Gamestop has taken no such measures.
“Gamestop could have sold stock and built up a war chest to figure out some sort of turnaround plan that could forestall its demise,” Chukumba said. “but that hasn’t happened.”
Last week, the Grapevine, Texas-based retailer announced a trio of executive hires, including the appointment of Matt Francis, an Amazon Web Services alum, to its newly created role of chief technology officer, bloomberg News reported. It also hired Kelli durkin as senior vice-president of customer care and Josh Krueger to be vice-president of fulfilment.
Although executives have promised turnaround efforts, analysts say the pandemic has added to the company’s woes. Gamestop has traditionally made its largest profits from its buysell-trade business, which buys back used games and consoles and resells them at a markup. but consumers are increasingly buying digital versions of games on platforms such as Xbox Live and Playstation Store, which means the retailer is left with a dwindling supply and dampened demand for used video games.
“When you buy a game for 69 cents and sell it for us$8.99, that’s the real money-maker,” said Stefano Scalia, a digital marketing executive in Silicon Valley who worked at a Gamestop store in Fremont, Calif., in the early 2010s. “It’s essentially become a pawnshop, and even that business model is decaying. How much longer are you going to go buy ‘Call of duty’ on dvd? you can see the brick wall at the end of the tunnel.”
Another negative: Services such as Xbox now have Netflix-like subscriptions for older games, through which users can pay as little as us$10 month for more than 100 games.
“Gamers are saying, Why am I going to pay us$30 for FIFA 2020 when I can just pay us$10 a month and play all of these other games, too?” Chukumba said.
Garrett Fields, 24, has a “soft spot” for Gamestop, but he has not been to a store in years. When he was younger, he and his siblings would raid the racks in search of cheap, used titles such as old FIFA games and “Super Mario Strikers.” Sometimes they’d eat dinner at a restaurant near Gamestop in the mall and sneak off to play demos of games including “Guitar Hero” before the food arrived.
“For me, it’s always been like, you go there for the old games,” Fields said.
Fields does not buy games often (he favours older games such as “Starcraft” and “Super Smash bros. Melee”), but when he does, it’s mostly online. He thinks something would be lost if physical Gamestop stores disappear, but he acknowledged it’s probably inevitable.
“I do think there’s some redeeming qualities that make it different than a blockbuster/netflix situation, but the bulk of it is a blockbuster/netflix situation,” Fields said. “eventually, you’re not going to need games from there.”
The company got its start in 1984 as babbage’s, an educational software shop in dallas. The retailer quickly carved out a business selling popular video games for Atari and Nintendo, and in 1999 was acquired by barnes & Noble for us$215 million. In 2002, Gamestop went public at us$18 a share. Its stock rose 12 per cent on the first day of trading.
Gamestop spun off into an independent company in 2004 and soon after bought eb Games for us$1.44 billion, gaining a foothold into europe, Canada, Australia and New Zealand. In recent years, the retailer has expanded into collectibles and novelty items with the acquisition of Thinkgeek parent company Geeknet.
As the company has expanded, analysts say it has lost its stronghold among gamers, who once camped out overnight for new console and game launches. As much of that business moved online, Gamestop rethought its strategy. Analysts say one of the most valuable parts of its business now is the company’s Powerup rewards loyalty program, whose members number 60 million.
“That is very valuable information, to know what millions of gamers are playing and to be able to use that to market games and draw them into stores for launches,” said Joseph Feldman, an analyst for Telsey Advisory Group. “It’s the kind of data most retailers just don’t have.”
even so, he said the company’s stock is worth about us$33 a share, which he noted is among the most optimistic estimates on Wall Street.
“Gamestop has had a pretty rough couple of years, and they’re expected to keep losing money this year,” he said. “even their holiday sales numbers (which fell 3 per cent) were disappointing.”
Meanwhile, monthly foot traffic to the company’s u.s. stores fell an average 28 per cent in 2020, according to Placer.ai, which analyzes foot traffic patterns using location data from 30 million devices. Annual revenue fell 22 per cent, to us$6.5 billion, from a year earlier.
“We were clearly behind in terms of digital penetration of sales,” Sherman, the CEO, said in a december earnings call. “We are behind in terms of technology. We still are very candid about having work to do, but we’ve come a long, long way.”
Gamestop’s stock got a boost late last year when ryan Cohen, the founder of pet care site Chewy.com, disclosed that he had spent us$76 million buying 9 million shares, or a roughly 10 per cent stake, in the company. Cohen, who along with two other former Chewy executives was appointed to Gamestop’s board in January, has urged the company to shift its focus away from physical stores and games to digital sales, esports and virtual gaming.
even so, analysts said they had doubts about the company’s long-term prospects.
“Gamestop could become the Amazon of selling video games, but that’s still not going to change any of the fundamental things that are wrong with this company,” Chukumba said. “His prescriptions have nothing to do with Gamestop’s ailments. ”
The store has also fallen out of step with game culture as it tries to appeal to a broader pop-culture audience, he said. Alongside video games from the Call of duty and Halo series are items that Victoria Wood called absurd and confounding: Fuggler monster dolls, gargantuan pickle plushies from “rick and Morty” and dynamite-shaped “red dead redemption 2” candles.
“They’re stretching in so many directions that they’re not hitting a specific demographic,” said Wood, 24, who worked at a Gamestop store in bedford, N.H., from 2018 to 2019.
Wolverine corncob holders and Zelda Tri-force tree toppers were piled high on shelves this weekend at a Gamestop store at the Mall at Prince George’s in Hyattsville, Md. Several teenagers browsed nearby.
“We’re very popular all of a sudden,” said employee danica Smith, 22, who noted that 100 people had stopped in, nearly double the average Saturday traffic.
but in other parts of the country, employees said stores have remained largely quiet.
Not much has changed at the Gamestop store in Fontana, Calif., where Niddia rangel works. Shoppers, she said, have been more interested in the availability of the new Playstation5 and Xbox series X than the company’s stock surge.
“The last week has been slow, as usual,” she said.
EVENTUALLY, YOU’RE NOT GOING TO NEED GAMES FROM THERE.