Strategic Analysis and Solutions for GameStop's Revival in the Digital Era
GameStop, a once booming company in the gaming industry, faces challenges due to the rise of digital downloads and online shopping. Key issues include declining mall culture and the inability to sell digital codes in-store. The solution proposed involves a strategic shift towards growing the ecommerce platform while closing physical stores to invest in digital growth. Through analyzing GameStop's history and current situation, a plan to bounce back and ensure sustainability is outlined.
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Presentation Transcript
Telfer inc. Presented to: The board of GameStop Presented by: Addy, Alisha, Arun and Shane 1
Current Situation Average participant age is 31 years Market size estimate: $18 billion for new video games $25 billion for digital game content Console sales CAGR 13.4% 457 million viewers tuning in to view e-sports 5830 stores $9 billion USD in revenues Sales per square feet - $657/sqft 22.5% of net sales comes from pre- owned segment 16,000 full time employees 3
Key Issues Dying company in a booming industry Massive shift to digital download Digital download codes cannot be sold by the store Decline in mall culture 25% malls were shutting down Rise of online shopping 5
Challenge To strategically bounce back from the currently dying situation and to turn a profit and then sustain that To tackle the problem of lack of product availability given the current direction of the industry 7
One Line Solution Consider a strategy to grow your ecommerce platform to transfer the amount saved on closing brick and mortar stores to building and growing these platforms 9
Analysis 10
Analysis Company in the past: 1984: First Store in Dallas, Texas Babbage s 1988: Company goes public. 1996: Mismanagement leads to bankruptcy Assets purchased by Leonard Riggio for $58.5M USD. 1999: Babbage s rebranded to GameStop. Sold to Barnes and Noble for $215MUSD. 2002: GameStop gets listed on New York Stock Exchange as GME . Early 2000s to mid-2010 s: Next wave in gaming popularity revenues grew rapidly for GameStop. Growth of North American Mall culture. Products to choose from for Gamers: Gaming consoles, newly-released games, collectibles, and sell their used Games to GameStop. GameStop goes global Europe, Canada, Australia and New Zealand. 11
Analysis GameStop Today: Around 5830 leased physical retail stores with 16000 full time and 23000 part time employees. Products continue to be : gaming consoles hardware and software, pre-owned video game software (represents 22.5% of net sales), accessories, collectibles. sub-brands such as EB Games and Micromania in Canada and Europe Game Informer magazine: 5th largest consumer publication in the US and approx. 6.6M paid subscribers, including 2.1 M paid digital subscribers. Rewards program: PowerUp Rewards approx. 39.6M members as of February 2019. 12
Analysis Strengths and opportunities Significant differentiation GameStop s pre-owned segment Collectibles Console sales will be fastest growing segment Hasn t made use of Data Analytics yet Doesn t participate in e-sports activities 13
Analysis Weaknesses and threats Competitors - Traditional and online Shift from physical game disks to downloaded games and online streaming services Sales, margins, store traffic has been going down Profits and non-existant 14
The best time to plant a tree was 40 years ago but the next best time is today 15
Analysis - Financials Net sales New video game software sales are slowing down 8600 8400 US $ millions 8200 8000 7800 7600 2018 2017 2016 16
Analysis - Financials Operating income Net loss on income in 2018 has led to dip in cash flows 600 500 US $ millions 400 300 200 100 0 2016 2017 2018 17
Analysis - Financials Gross profit is plummeting 2550 2500 2450 US $ millions 2400 2350 2300 2250 2200 2016 2017 2018 18
Analysis - Financials Brick and mortar stores operated by GameStop Total stores Micromania EB Games GameStop 0 2000 4000 6000 8000 19
Options 20
Options Re-Mix Slash Burn David v/s Goliath Cut down on few countries Still keep some Brick and mortar stores for hardware and collectibles All digital solution with E-Sports league and streaming platform and digital download platform (downsize those stores that are in smaller malls) 21
Options Competition Cost Risk Profit Risk adjusted profit Option 1: Slash Burn Low Low High Low Low Option 2: Remix Medium High Medium High Medium Option 3: David v/s Goliath (All digital) High High High High Low 23
Recommendation Competition Cost Risk Profit Risk adjusted profit Option 1: Slash Burn Low Low High Low Low Option 2: Remix Medium High Medium High Medium Option 3: David v/s Goliath (All digital) High High High High Low 25
Implementation Shift to retail E-Commerce Digital Downloads Vintage game reselling/Consoles Collectibles Collectibles Exclusive content Launch with live stream Blumhouse films Leverage talent: Frank Hamlin and James Bell Leverage Talent: Chris Homeister 27
Implementation Shift to retail Short 2020 Medium 2021-2022 Long term 2023-2024 Close Scandinavia Australia and new Zealand Do not renew any traditional leases 1457 GameStop cafes Open 20 major pilot cafes in major markets Open additional 300 No traditional mall stores remaining 1457 28
Implementation E-Commerce Short Medium Long term Optimize ecommerce to game related merchandise/collectable Open up digital download platforms to all game developers 100 exclusive game titles Ten exclusive game titles 25 exclusive game titles Customized merchandise for streamers 29
Financials 30
Financials Costs of implementation 2020 2021 2022 2023 2024 Store renovation 5 5 5 5 5 Caf 20 20 20 20 20 Exclusive content and merchandise 5 5 5 5 5 Indie games 5 5 5 5 5 Hiring 5 5 5 5 5 Optimise eCommerce platform 10 10 10 10 10 Computers, Playstations, Xbox 10 10 10 10 10 Total 60 60 60 60 60 31
Financials Net sales 9500 9000 8500 8000 7500 7000 2017 2018 2019 2020 2021 2022 2023 2024 32
Financials Net profits 1000 800 600 400 200 0 2017 2018 2019 2020 2021 2022 2023 2024 -200 -400 -600 -800 33
Risks 34
Risks and responses E-Commerce Risk Liklihood Response Cafe operate at a loss Very high Mitigate Online retail Exclusive content doesn t generate many sales Moderate Mitigate with many low cost deals Other things sold on ecommerce platforms 35
Conclusions 36
Questions? 37
(in millions USD) 2018 2019 2020 2021 2022 2023 2024 Net sales % New video game hardware 1767.8 0.2 1750.0 0.2 1800.0 0.2 1980.0 0.2 2178.0 0.3 2395.8 0.3 2635.4 0.3 New video game software 2449.7 0.3 2000.0 0.3 1900.0 0.2 1800.0 0.2 1800.0 0.2 1800.0 0.2 1800.0 0.2 Pre-owned game products Video game accessories 1866.3 0.2 1800.0 0.2 1800.0 0.2 1800.0 0.2 1800.0 0.2 1800.0 0.2 1800.0 0.2 956.5 0.1 950.0 0.1 997.5 0.1 1047.4 0.1 1099.7 0.1 1154.7 0.1 1212.5 0.1 Digital 194.0 0.0 250.0 0.0 250.0 0.0 250.0 0.0 250.0 0.0 250.0 0.0 250.0 0.0 Collectibles 707.5 0.1 750.0 0.1 825.0 0.1 907.5 0.1 998.3 0.1 1098.1 0.1 1207.9 0.1 Other 343.5 0.0 350.0 0.0 350.0 0.0 350.0 0.0 350.0 0.0 350.0 0.0 350.0 0.0 Total 8285.3 1.0 7850.0 1.0 7922.5 1.0 8134.9 1.0 8476.0 1.0 8848.6 1.0 9255.7 1.0
2017 2018 2019 2020 2021 2022 2023 2024 Net sales 8547.1 8285.3 7850 7923 8135 8476 8848 9266 Cost of sales 6062.2 5977.2 6200 6200 6200 6200 6200 6200 Gross profit 2484.9 2308.1 1650 1723 1935 2276 2648 3066 Operating expenses Depreciation and amortization 122 106 120 120 120 120 120 120 Goodwill and asset impairments 13.8 1016 SGA 1909.6 1888.6 1900 1900 1900 1900 1900 1900 Operating earnings 439.5 -702.5 -370 -297 -85 256 628 1046 Interest expense 55.3 51.1 60 60 60 60 60 60 Income tax expense Loss from discontinued operations 153.5 41.7 160 160 160 160 160 160 -195.7 121.8 Net income 35 -673.5 -590 -517 -305 36 408 826
