Can GameStop reboot itself?

Being mentioned in the company of Blockbuster, Circuit City and Borders, doesn’t suggest good news for GameStop.

Articles citing comparisons to those retail collapses arrived last week after GameStop reported disappointing first quarter results, including a 10.3 percent drop in same-store sales, as well as a decision to eliminate its dividend to shore up its balance sheet. Shares fell 36 percent last Wednesday on the report.

On its quarterly conference call, George Sherman, who took over as CEO in April, said the retailer’s turnaround “will require immediate action on our part and an ongoing sense of urgency that is off the charts.”

To a degree, GameStop’s challenges are tied to the end of the current gaming console cycle. Sony’s PlayStation 4 and Microsoft’s Xbox One were released in 2013 and gamers may be waiting for the next-generation platforms to launch next year.

The bigger challenge, however, is that gamers are playing using digital downloads on smartphones. Nintendo, Sony and Microsoft offer options for downloading games directly from their networks, and Electronic Arts and Activision are also experiencing digital growth. Google, Amazon and Apple are all believed to be developing Netflix-like subscription gaming services. The digital downloads further eliminate GameStop’s profitable pre-owned games business.

On the positive side, books, CDs, movies and other categories were generally seeing modest growth when they were disrupted by digitization. Gaming, however, is surging in popularity as witnessed by the rise in esports.

GameStop is by far the leader in the category with 3,777 stores domestically and 1,912 internationally.

GameStop’s turnaround strategies so far include de-cluttering stores to focus on best sellers, expanding “collectibles” like action figures and T-shirts and offering more “immersive and interactive experiences.” The retailer plans to leverage its 60 million loyalty members to not only drive traffic but support the marketing efforts of games publishers, console makers and esports leagues. Said Mr. Sherman, “We’re evaluating new revenue streams and how we can and should participate in the digital economy.”

• GameStop Reports First Quarter Fiscal 2019 Results – GameStop
• GameStop Corp. CEO George Sherman on Q1 2019 Results – Earnings Call Transcript – Seeking Alpha
• GameStop Has Become the Poster Child for Retail Woes and Tech Disruption – Barron’s
• GameStop stock plunges nearly 40 percent as gamers brace for new era of consoles – The Washington Post
• GameStop Analysts See Hard Road Ahead For Retailer After Poorly Received Q1 – Benzinga
• GameStop Slumps 40% to 16-Year Low as Gaming Passes It By – Bloomberg
• GameStop Stock Is Cratering: This Could Go The Way Of Blockbuster – Forbes