They’re hard to miss, so by now you’ve probably seen the doom and gloom headlines of GameStop’s imminent demise. After all, they’re closing stores and have seen their revenue decline year over year, so it is inevitable as death is for the non-mortally challenged right? The long answer is rather complicated, but in the short term, no GameStop is not dying out, the company is course correcting.
GameStop’s predicament isn’t all that uncommon in business. During their good years from 2004-2016 the company acquired various other chains and ballooned their operation to over 7500 stores in 14 countries, 86 Collectible outlets, 1,522 Simply Mac, Spring Mobile AT&T and Cricket stores by 2016.
Outwards this growth gave the appearance of a healthy company, but revenue began taking a downturn in 2016 for a variety of reasons. From that point, management failed to adapt to the changing times resulting ultimately in the company sacking its executives a few months ago after a round of layoffs of their regional managers in August.
Ultimately what led to their decline isn’t as complicated nor simple as people would make it out to be. Some argue the rise in digital distribution along with Amazon entering the market gutted GameStop’s revenue, but statistically speaking the majority of games are still purchased physically and their diversification should have shielded them partially from said downturn.
Rather than digital distribution killing GameStop, GameStop was killing GameStop. GameStop essentially pulled a Starbucks resulting in some areas having stores across the street from each other. Towns whose markets could only support a single GameStop in some cases had three of them. As a result of Gamestop was gutting GameStop’s business leading to areas that otherwise would be profitable turning into losses from inventory and a failure to generate significant sales volume per location.
Thus when they announce they are closing an additional 320 stores, as reported by Gamasutra, they are referring to the outlets in oversaturated regions. A fact highlighted with their restructuring being dub a“de-densification plan.”
“We continue to focus on optimizing our global store fleet in fiscal 2019 and closed a net total of 321 stores inclusive of 333 closings and 12 openings. In fiscal 2020, we will continue in our efforts to de-densify our store base, focused on maximizing product productivity of the entire fleet,” he said.
“We anticipate store closures to be equal to or more than 320 net closures we saw in fiscal 2019 on a global basis. Importantly, we want to emphasize that these store closures are a very specific and proactive part of our de-densification plan and they are not related to recent business trends.” -Jim Bell Gamestop VP and Chief Financial Officer
That is all well and good, but oversaturation is only a part of the problem. The other half is the gaming industry has simply produced fewer products focusing on increased revenue from Games as A Service models, oftentimes referred to as GaaS. Revenue for the industry as a whole may be up and peeking, it isn’t coming from unit sales. Instead, it originates from gambling mechanics found in sports titles, expedition mechanics found in mobile and increasingly console titles, and digital expansions. Skins, weapons, and other microtransactions make up the majority of the most profitable titles over the last few years, as detailed by finance outlet The Motley Fool.
Consider what were the highest-grossing games in 2016. Sitting on top was League of Legends at 1.7 billion dollars followed by Honor of Kings/Arena of Valor at 1.611 Billion. In fact, not a single one of the highest-grossing titles of 2016 wasn’t heavily monetized. As a result, the economically illiterate execs running these companies think every game can and should be like them, but that is another issue for another day.
2017 continued the trend, with the addition of Call of Duty and Fate/Grand Order joining the ranks, before the rise of Fortnite and PlayerUnknown’s Battlegrounds in 2018. Both titles would hold on for the following year with revenue declines, but the rest of the top-grossing games continue to earn their revenue through monetization models.
This has the effect of the industry when taken as a whole looking healthy, but in actual function being very economically unsound. Leading towards Gamestop’s declining revenue along with Ubisoft’s disastrous year. As economists warned the industry. With live services, players will stay attached to them and not go out and buy other products. Ubisoft was the first publisher to experience this effect, but Gamestop was effectively the canary in the coal mine.
Naturally, it didn’t help that corporate did nothing to improve overall performance or customer relations during this time. They didn’t adopt the internet cafe models of European or Asian franchises, nor offered competitive options to compete against Amazon. I can personally recount how they’ve lost a digital sale as they were unable to guarantee same day arrival whereas Amazon does. All the while they gave themselves raises and bonuses while refusing to even give their employees, who had quotas, even a few cent commission per sale. As a result word on the ground is pretty positive over their termination.
Will GameStop last forever? Probably not, nothing really does. Yet pronouncing it on its deathbed is a premature and ill-informed position. A digital-only future is a long way off. Streaming, while enjoyed by a few, shows no signs of catching on as a legitimate distribution method. Worse for the industry without Gamestops around they would no longer be able to stick them with their “Shipped” figures. Leaving the only thing growing in that reality to be our master list.