"GameStop is doomed."
It's a pretty common sentiment these days, one you might have seen in this very column previously. It's also largely true. GameStop deals with physical goods in an increasingly digital medium. That didn't turn out so great for Tower Records, Virgin Megastore, Suncoast Video, Sam Goody, Musicland, Blockbuster Video, or countless local comic book shops.
But this week suggests it's not dead quite yet.
I mean, yes, most of the chain's 5,500 worldwide locations are shut down entirely or operating as curbside pick-up locations for online orders, and the novel coronavirus (COVID-19) pandemic is probably going to hurt GameStop more than publishers who run games-as-a-service businesses suddenly seeing a huge uptick in engagement as people stop leaving the house.
And sure, this whole thing is probably just going to get more people used to buying games digitally, accelerating the industry's macro trend of shifting away from physical games. And OK, many of the people who do buy physical games at this point are doing it because they have an affection for physical media or a distrust of purely digital "ownership," so they're less likely to trade in games, which in turn eats away at one of the traditional pillars of GameStop's business. (It's worth noting that GameStop has changed the way it reports its earnings and no longer separates new game sales from used game sales.)
Maybe closing 300 stores in a year and promising to scrap that many or more in the year ahead sounds like a drastic, almost desperate move. But to be fair, the early 2000s saw Babbage's, Software Etc., Funco Land, and Electronics Boutique all become GameStop, and anecdotally, I rarely saw them consolidate locations. I remember a mile-long stretch of road near my old place that had five GameStop locations. Some malls had multiple GameStops, because apparently an Xbox is an impulse purchase on par with a pumpkin spice latte, and you can't be bothered to walk all the way to the food court to get one.
And yes, GameStop entered the new fiscal year with the lowest cash-on-hand ($499.4 million) since January of 2006, when it only had $401.6 million but had also just spent $1 billion in cash to buy Electronics Boutique and merge the two companies into the pre-order-and-Power-Up-membership-pushing Voltron we know and begrudgingly sometimes shop at today. In hindsight, maybe it should have pocketed some more of the $700 million it received last year for selling Spring Mobile instead of pumping $199 million of that into stock buybacks.
Granted, it reported $611.5 million in shareholder equity this week, the first time that number has been under $1 billion at the beginning of the fiscal year since before the EB merger.
So in conclusion, GameStop is doomed.
Oops, wait, that wasn't my point here. What I meant to say was that I think GameStop is clearly trending downward, but still has a bit of runaway to limp down before the lights go off for good.
First of all, it can still put up positive numbers here and there. It reported its fourth quarter numbers this week and while revenue was down sharply, it managed to make a net profit of $21 million. While that's not nearly enough to offset GameStop's losses from its non-holiday quarters last year—it ended up losing almost $471 million in total for the full year—it's a positive sign that the retailer wasn't in a nosedive heading into the pandemic.
Then there's the fact that the company actually saw modest year-over-year sales gains for the first few weeks of March, even though many of its stores were either shut down or operating in limited capacity due to COVID-19. Big launches for Animal Crossing: New Horizons and Doom Eternal likely played a part in that, but if big new games can push the company's results up, that does suggest that its current plight is not just a function of an antiquated physical medium playing out the string (which I still think it largely is), but perhaps more due to usual slowdown that accompanies the end of a console generation. And if that's the case, this holiday's reinforcements from Sony and Microsoft could spark a lot more interest in gaming and drive a lot of people back to GameStop.
As for the pandemic period itself, $499 million cash-on-hand isn't as big a cushion as the company is used to having, but I'm guessing it's enough that GameStop should be able to keep the lights on. (Particularly with all the savings from not keeping lights on in closed stores.)
QUOTE | "This is not an act of good corporate citizenship. No disrespect to that business, but they were asked to close down if they were not an essential business and they chose not to do so." - Toronto Mayor John Tory expressed his frustration after dozens of people lined up at one of GameStop's stores for Animal Crossing: New Horizons and Doom: Eternal's launch.
QUOTE | "We have been steadfast in our adherence to CDC-guided safety and local government orders for retailers in each of our communities." - Later in the same story, GameStop CEO George Sherman tries to Matrix bullet-dodge criticism by sliding through the narrow rhetorical gap of a government request to shut down and a government order to shut down.
STAT | 1.88 million - Animal Crossing: New Horizon's Japanese physical sales total in its first three days, good enough to become the fastest-selling Switch game in Japan by a wide margin. The next fastest sellers were Pokemon Sword and Shield (1.36 million combined) and Super Smash Bros. Ultimate (1.24 million).
STAT | 2% - GameStop's increase in comparable store sales for the month of March up through the day after Animal Crossing and Doom: Eternal launched, at which point it closed all Canadian entirely and all US locations except for curbside pickup of online orders.
STAT | 321 - In the same story as above, the number of stores GameStop closed in its last fiscal year. It plans to close at least that many this year in its efforts to "de-densify" its retail footprint. At the moment, it has more than 5,500 stores around the world.
QUOTE | "As of now, we have no indication of any impact on the product launch or delivery date, which is expected in time for holiday 2020." - GameStop CEO George Sherman says the Xbox Series X and PlayStation 5 launches don't yet seem to be in danger of being delayed. A day later, Sony would confirm it still plans for a Q4 PS5 debut.
QUOTE | "As a provider of services to the global video games industry, we rely on our people every hour of every day..." - Keywords Studios CEO Andrew Day with an unfortunate choice of words as the contract QA studio deals with employee criticisms that rank-and-file staff were being made to show up and crunch like normal during the pandemic while managers were allowed to work from home.
QUOTE | "We're building the publishing model we always wanted for ourselves when we worked with publishers." - Epic Games CEO Tim Sweeney talks about the company's new publishing arm, which gives developers full creative ownership, 100% of the IP rights, pays for up to 100% of development, splits profits 50/50 after its costs are recouped.
QUOTE | "Once we re-open, it's not like people are going to snap right back. Every family has their own set of circumstances. Some people lost their job. Some came out of this totally unscathed. Some people are frankly afraid to come out because they think the virus is going to come right back. It's going to take a little bit of time for things to normalize." GameWorks CEO Philip Kaplan talks about what the esports arcade restaurant operation is doing while all its locations are shut down due to COVID-19, and the logistics of how it will start back up again.
STAT | 22.6 million - Steam's total concurrent users at one point this week, a new record for the platform.
STAT | 43,000 - Launch day concurrent user count for Half-Life: Alyx, the eagerly awaited continuation of the Half-Life franchise that is exclusive to VR.