GameStop put out their financial numbers for the latest quarter, and there’s no hiding this number: $624 million. That’s how much GameStop lost over a three month period. A lot of that is due to stupid accounting tricks, but what really matters is that everything is down; software, pre-owned, pre-orders, etc. The only area that’s up is digital, but as digital sales in a brick-and-mortar store are ultimately in their infancy, there’s really not much to compare there. These losses are Sony-like.
What’s even worse for them is that projections for the next quarter – the holiday quarter – are heavily down as well; they’re looking at up to 7% down in overall sales. This leads credence to what I’ve been saying all along: GameStop is going to be incapable of sufficiently changing their proverbial stripes enough to retain shareholder value. There simply won’t be enough brick-and-mortar sales to be had.
This fall is being blamed on what GameStop calls “the longevity of the current console cycle and the difficult comparison of major new software titles released during the third quarter of 2012”. However, the problem is that they can see the writing on the wall – they know the console business is going to have adjustment issues going forward – and are putting their stock in digital and tablet sales. In both, there’s too much competition. Why would I go to the store to buy downloadable content? There’s no discount in most cases; at best, I’m just buying a card, the same card that I can buy at Walmart or Target. Tablets? GameStop is the last place I’m going for that. If I’m not getting an iPad, I’m going to Best Buy, or maybe even the Sprint store to check them out before going on Amazon. I had a clerk tell me one time that their tablets were better because they were optimized for gaming. I admire this person’s spirited attempt to not get fired by a district manager who likely doesn’t even know his name because he didn’t hit his numbers, but that’s a load of crap; ThinkGeek has all sorts of tools that can “optimize” any Android tablet, not just the one that comes with Sonic CD. As for those preorder sales that GameStop was printing money with in the PS2 era, those are going the way of the dodo thanks to Project Ten Dollar initiatives and digital distribution; the latter will eventually overtake physical discs altogether.
GameStop’s time as a major retailer is running out because they’re running out of specialty product to sell, and no one outside of pawn shops have ever made a viable business from used iPhones. Within five years, I believe we’ll be mentioning GameStop in the same breath as their British counterpart, GAME. Unlike some, I don’t necessarily think that as a good thing; digital distribution has its own issues, many of which can be traced to DRM and the massive loophole it blows away in the First Sale Doctrine, so rooting for one just to screw GameStop reeks to me like shooting ones foot to spite their nose. However, I deal in business realities, and the reality of the situation is that GameStop will never again reach the heights it had in the mid-00s, and in five years, might effectively cease to exist.