Not great news for brick and mortar stores.
[dropcap size=small]G[/dropcap]amestop has been one of the leaders in physical video game sales for years. Even though the industry trend had been moving towards more digital sales, Gamestop had remained as the industry giant that would prevail. This seems to be no longer the case.
Gamestop had a poor fourth quarter that did not meet their projections. Their physical game sales were down 15% in Q4 and, excluding Pokemon, they saw a 40% of the top eight physical titles when compared to their results in the same quarter of 2015. Gamestop’s hardware sales also declined 29.1% and their overall game sales fell 19.3%. During an investor call, Gamestop CEO Paul Raines discussed the quarter results.
This console upgrades were also not as meaningful as we had hoped. Some have argued that this decline was caused by title fatigue, others have argued for a need for new consoles. And looking more broadly across the general retail spectrum it was obviously a transformational holiday season for a number of hard-line retailers.
While 2016 was not the best year for Gamestop, it does not look like 2017 will be much better. They are predicting declines in both hardware and physical game sales. This is causing Gamestop to close 2-3% of their stores to cut costs. This will end up being over 250 stores that will have to close.
While this sounds bad for Gamestop there is some optimism. The release of Microsoft’s Project Scorpio along with the Nintendo Switch may be able to lift sales above their projections during the holiday season. This could potentially stop a few stores from closing and help save a few jobs.
However, if Gamestop is facing losses like this then they may need to change their business model. They make a large part of their revenue from buying and selling used games, the circle of life program as they call it. There have been some issues brought up how the program operates and treats customers and employees. You can read Kotaku’s article on the program here. This program may need to be abandoned if it is deemed that it is hurting the overall profitability of the company.
Gamestop is in a time of turbulence and with many consumers moving to online shopping and buying directly from manufacturers; they, and other brick and mortar stores, have taken a large hit. It will be interesting to see what their next move will be.
