Like many other brick-and-mortar retailers, GameStop’s long-term financial health depends on how much damage the Internet can ultimately do to its bottom line. For years, though, the video game retailer seemed almost immune to the effects of web retail. Prices remained competitive thanks to the company’s dependence on reselling used games and consoles while its knowledgeable sales staff ensured that regular customers stayed happy.
Still, many experts are predicting that GameStop will go the way of Blockbuster sooner or later. Just as the video rental company couldn’t stay afloat as streaming content took over, the rise of full-game downloads presents a similar problem to GameStop. Consumers can now purchase entire games from the comfort of their Xbox or Playstation consoles, putting GameStop’s dependence on used item sales in jeopardy. After all, you can’t resell a downloaded game. Publishers as well as console makers like Microsoft and Sony have long searched for a way to freeze out GameStop from the market, which they see as a drain on their own profits. Their wishes could finally be coming true as the retailer posted weak holiday sales numbers at year’s end, sending their stock price into free fall.
GameStop hasn’t faded into irrelevance just yet, though. As executives at the company are quick to point out, the retailer still accounts for as much as 40 percent of sales in digitally licensed content. This includes items such as extra lives or special weapons that can be used within a video game. While these virtual products are available to download directly, many consumers buy them at the GameStop counter after being prompted by a staff member. And those aren’t the only intangible items that the retailer offers: GameStop also accounts for 10 to 15 percent of all full game downloads. Since many young gamers lack a credit card to make Internet purchases, they head down to the store to buy their games on coded cards that can be redeemed online. Furthermore, the prospect of trading in old games to earn credit towards new ones sends plenty of people through GameStop’s doors. The company is also making strides into the used cell phone market, employing a large facility normally used to refurbish games and consoles to restore smartphones. While it’s too early to tell if any of this will be enough to save the company, it’s at least safe to say that GameStop isn’t going down without a fight.
Questions:
- What does GameStop need to do to avoid losing its place in the market?
- What stage of the product life cycle would you place GameStop?
Source: Joshua Brustein, “Extra Lives: Can GameStop Avoid Blockbuster’s Fate?” Bloomberg BusinessWeek, January 8, 2015. Photo by: Stephan Mosel.