- The GameStop stock surge is prompting reexaminations of the video game retailer itself.
- Many believe that, once the internet investor surge dies out, the company is doomed to the same fate of Blockbuster.
- But GameStop’s strategy isn’t quite as backwards as many have made the case for, argues professor Sayan Chatterjee.
- Visit Business Insider’s homepage for more stories.
As Reddit traders help bring GameStop stock values to record highs, all eyes on Wall Street (not to mention the news cycle and probably your timeline) will be trained on the video game retailer to see what happens next.
But GameStop can only ride the internet investor wave for so long, and when Wall Street Bets turns its attention elsewhere, the 37-year-old company will have to rely on its own strategy to stay afloat.
Analysts and investors alike have expressed doubt that will be possible.
Time and time again, analysts have drawn the comparison between GameStop and former movie rental giant Blockbuster, which filed for bankruptcy in 2010 due to mounting competition from online streaming services, namely Netflix. Like Blockbuster, they argue, GameStop hasn’t moved fast enough to rapidly digitizing game retail landscape — and, like Blockbuster, its days are numbered.
“I definitely think it’s a melting ice cube,” Wedbush analyst Michael Pachter previously told Insider of GameStop’s disc-based business model. “For sure it’s going to go away eventually. And for sure their future will be truncated and eliminated the day that discs stop being manufactured.”
But some also say there is good evidence that GameStop won’t necessarily meet the same fate. Dr. Sayan Chatterjee, a corporate strategy professor at Case Western University’s Weatherhead School of Management who co-authored the 2012 case study on GameStop, has been following the company for over a decade now. He told Insider about why he’s cautiously optimistic about the gaming vendor.
A loyal buyer business model
GameStop has focused its business model around building a community.
For many loyal customers, GameStop’s appeal is that it provides customers with a place to trade in games and chat with salespeople, many of whom are also gamers. And by creating that community, the company has been able to better learn the needs of its customers. Before the pandemic struck, GameStop considered turning many of its stores into cultural destinations and community spaces for customers.
“It became really a community, what I call a loyal buyer model, that attracted people to go there and just hang out,” Chatterjee says. “What Gamestop did is essentially figure out how to monetize that by learning more and more about what gets these gamers going.”
With a pandemic continuing to run rampant and GameStop closing stores in recent years, an in-person community might not be the thing that saves the company. But the company’s focus on consumers and community does make for a loyal customer base that could keep buying games the traditional way for years to come, or so the argument goes.
A 2019 study has shown that around 40% of Americans still buy hard copies of their games. That’s a decline from a time when all games had to be purchased via hard copy, to be sure — but some loyal traders still tout the benefits of buying physical copies for their collectible and resale value, and Microsoft and Sony continued to put out new disc-based consoles in 2020. And for those who still buy physical copies, GameStop, the world’s biggest video game retailer, is still the first place they’d think to look.
Also, per the pandemic, the market is massive: MarketWatch reports the the global game market is actively eclipsing the combined scale of the movie and North American pro sports fields together.
Staying further ahead than you think
To be sure, 2019 was a difficult year for GameStop. In August, the company reached its lowest point in nearly 20 years of trading, at $3.71 a share.
That same year, though, the company brought in Ben Sherman as CEO to turn things around. Sherman was aware that digital downloads posed one of the most existential threats to the company, and he oriented its direction accordingly.
“We understand that digital will continue to be a significant part of the video game industry,” Sherman said in the company’s 2019 Q1 earnings call. “GameStop needs to be there, and I’m committed to ensuring that we will be.”
There are at least early signs that he’s followed through. In October 2020, GameStop announced that it would use Microsoft cloud products for retail services and equip employees with Surface tablets. Microsoft also agreed to share digital game revenues for consoles sold through GameStop stores.
Pivoting during uncertain times
In 2020, the coronavirus shifted GameStop’s sales to e-commerce. Online sales grew 309% during the holiday season. And this past month, the company added Chewy co-founder Ryan Cohen, who’s been vocal about moving GameStop even further into the digital market. (Cohen has reaped huge initial returns from the stock furor.)
“What this communicates to investors is that GameStop can pivot from retail in times where it needs to, because stores are closed or hard to access because of the pandemic,” Michael Futter, a game industry analyst and founder of the consulting firm F-Squared, told Fast Company.
That doesn’t mean GameStop is guaranteed wild success in the years to come. The company has still made some major errors, like its expensive Spring Mobile acquisition in 2013 that burdened the company with extra debt.
What’s more, the future of console gaming remains uncertain, and even Chatterjee anticipates GameStop’s future being a “hard sell” with the rise of digital gaming. But if the company dies out, it likely won’t be because it had the same complacency as Blockbuster.
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