GameStop Will “Evolve Along With” Subscription Services – Will it be Enough?


It's no secret that physical retail is struggling. It doesn't matter what sector you look at, it's struggling. Few seem to be struggling more than physical gaming chains though. The move to digital stores has severely hamstrung companies like Game (LON:GMD) here in the UK and GameStop (NYSE:GME) in the US, as it has across all brick and mortar outlets. Only in the case of video game stores, they've also had further competition with the multiple digital storefronts on consoles and the PC.

One big takeaway from E3 this year is that, as we've seen through the build-up of the Xbox Game Pass and EA Access, now seems to be the age of subscriptions. From the Game Pass and EA Access to the recently announced uPlay+, Stadia and even Apple Arcade. It's only a matter of time until Activision leap back in after their ill-fated Call of Duty Elite venture, further reducing the need for outlets that actually sell games.

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GameStop and the Cost of Digital

The move towards subscriptions and GameStop's position in this move has been a point of discussion in a recent interview with Gamesindustry.biz. When speaking to Eric Bright, GameStop's VP of Merchandising, he stated that he is not concerned about the increasing move to digital within the games business.

GameStop is focused on games and gaming culture overall. Any way that we can look at monetising overall digital sales, we will. You can be assured of that given the fact that we have 65 million members in PowerUp Rewards, we're no more than a skateboard ride away from 80 per cent of the overall population of the United States, and we have 45,000 of the most knowledgeable game associates, which are basically the distributed sales force for the entire industry, working for us.

Our partners know that partnering with GameStop on all the new ways of monetisation are in their best interest, so we're engaging in conversations with everyone as new formats come out. Much like we were able to sell digital and are able to sell digital codes in every single GameStop store and online today, as new subscription models come out and evolve, GameStop will evolve right along with it.

There is an undeniable truth to the aspect that even in a world that is moving towards the digital, even that of a subscription, there will always be a position for a store to sell codes - or cards - for the digital service. This could simply be due to the lack of a payment card, in the case of a younger audience, or through people preferring to simply pay as they go rather than be in a subscription, they may forget about.

The issue is that GameStop, as much as they do sell these codes for digital products, are still losing out in a large way. GameStop lost $673 million in 2018, thanks to declining sales of hardware and software, both new and pre-owned. The areas that increased were that of digital sales, where the market is considerably more competitive, as well as collectables. Even as recently as last month, the stock of GameStop plummeted, following a poor quarter and the elimination of the dividend for the quarter.

The Collectible and eSports Push

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Further on in the interview with Gamesindustry, the discussion went into the direction which GameStop is looking to move. Primarily, this is for the attachment of other products related to video games. There is undoubtedly a market for these items and, for at least some time to come, there will still be a market for physical games, though this will continue to decline.

Eric Bright had this to say on GameStop's future:

The other items, the collectibles, add-on sales to all the great IPs that we just talked about, Cyberpunk, Star Wars, Pokémon or Zelda, we will certainly double down on and be able to drive that attachment. But part of the future for us overall is the value in GameStop being the only gaming specialist store in the world in which it's really a community hub for gamers.

We see that, our partners see that and our consumers see that. We know through our PowerUp Rewards membership that we have, GameStop's role in the future is how do we expand to become that centre point for the community where gamers can come and congregate and learn and be educated about all of the items that are out there, and how does GameStop turn that into a revenue stream for us. I think you'll see some big changes in the upcoming future for GameStop that will double down on that very thought.

While this push to be a centre for video games as a social activity could work, there is already a company in the process of this. Game, which has been partly-owned by Sports Direct since 2017, has been struggling despite large financial support from the sports chain. This is despite the company moving into these areas that GameStop is speaking of, with the larger Game stores in the UK having what is labelled as 'belong' areas. These are places where customers can pay to play titles on high-end PC's or consoles, letting them have a hands-on with the latest titles.

The issue GameStop will have, to a far larger degree than Game still has, is having the cash to make this change. Leases for stores still have to be paid and as sales diminish, the profitability of stores making the transition will struggle at best. This isn't to say that the change isn't possible, but it will require a lot of work, money and patience from investors. The US is the largest market for games and with 65 million customers, GameStop still has the chance to be a profitable business that serves a large game-buying public.

The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.