Companies and Brands

This Famous Video Games Retailer Is Falling Apart

Douglas A. McIntyre

Published: June 5, 2019 8:59 am

Last Updated: January 30, 2020 8:00 pm

One of the largest retailers in the United States based on its number of stores is in terrible trouble. With over 5,700 locations, it is the latest store chain to experience a massive revenue drop. It is large enough to be a Fortune 500 company.

GameStop Corp. (NYSE: GME) sells video games and virtual reality products. It is America’s “go to” place for row after row of games. It also has e-commerce operations. As with many retailers, its online sales have not been enough to save it. It even has the standard free shipping most retailers have, in its case for items over $50. None of that has helped.

GameStop’s revenue plunged over 13% last quarter to $1.5 billion. Comparable store sales dropped more than 10%. At these rates, there is no way GameStop can keep as many stores open as it has. The most brutal drop was in the category of new game hardware. It fell 35%, “with an increase in Nintendo Switch sales more than offset by a decline in Xbox One and PlayStation 4 console sales,” said the company. Digital sales, which GameStop needs for a turnaround, fell 6.7%. GameStop’s net income was $7.5 million, which means it operates on razor-thin margins.

GameStop’s forecasts for the current year were barely better. Revenue may drop as much as 10%, as is the case with same-store sales, according to management’s forecast. There is no end in sight to its deteriorating business.

Where have the sales gone? As is the case for most major retailers, Amazon.com Inc. (NASDAQ: AMZN) has become GameStop’s enemy. Amazon has a tremendous inventory of games and consoles.

Both GameStop and Amazon market the products that were on the list of the bestselling video games of 2018.

Amazon sees hundreds of millions of visitors to its sites, and it has over 100 million Prime members who get discounts on products and free shipping. GameStop is being steamrolled by Amazon the same way other brick-and-mortar retailers have been for the past several years.

As GameStop announced earnings, George Sherman, GameStop’s chief executive officer, said, “We believe we will transform the business and shape the strategy for the GameStop of the future.” His cause is close to hopeless. GameStop likely will join the list of retailers closing the most stores.