GameStop's Strategic Roadmap for Future Success in a Rapidly Changing Industry

GameStop faces challenges in the shifting digital market with declining stock prices. The strategic recommendations include enhancing the gaming experience, implementing a games club community platform, and partnering with Ubisoft. Megatrends like console sales, e-sports, and digital sales influence the industry shift, positioning GameStop to profit from these changes. The company's competitive advantage includes a loyal customer base in a fiercely competitive market.

• GameStop
• strategic roadmap
• industry shift
• digital market
• competitive advantage

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1. We strive for your success. GameStop: A New Lease on Life, or Game Over? Presenting to: Mr. George Sherman (CEO GameStop) Delivered by: Louisa Vogt, Albert Gorlick, Marvin Klose, Jona Vogel Paderborn University Montreal, 9th January 2020

2. Driving question. How to ensure future success in rapidly shifting industry? Decreasing stock price and shareholder value Key Issues Industry shift Position in digital market? 2

3. Solution preview. Strategic recommendation 1 2 New gaming experience 3 Implementation actions 1 Games club Community platform 2 Increase of operating income to $ 700 mn 3 Ubisoft cooperation 3

4. Road to success. Status Quo Implementation Strategy Outlook 4

5. Status Quo 5

6. Status Quo Strategy Implementation Outlook GameStop at a glance. Product Channel Customer Gaming consoles Games (hard- and software) Accessories Digital currency Preowned Collectibles Game Informer magazine and e-zine GameStop branded stores ThinkGeek stores Online websites E-stores Teens Young adults Loyal customer 5,830 stores worldwide (US, Canada, EU, Australia) 16,000 fulltime employees 23,000-45,000 part-time employees Importance of high customer loyalty - Loyalty program 6

7. Status Quo Strategy Implementation Outlook GameStop getting disrupted. New normal Clear Inevitable Detectable Disruptor Incumbent Megatrends highly influence a shift in industry 7

8. Status Quo Strategy Implementation Outlook Megatrends dominate the industry shift. Console sales 13.4% CAGR E-sports Digital sales Streaming 27% money spent 15% CAGR 50% Increasing entertain- ment industry Malls closing Demand for experiences Position GameStop to profit from Megatrends 8

9. Status Quo Strategy Implementation Outlook Position in large, fiercely competitive market. Competitive advantage Wal- mart Size revenue Amaz on Re-selling market Target Game fly Gamefly rents games Best Buy Game Stop Challenge Online Offline Sony prohibited sellin digital download codes Uplay Combined offline & online business to outperform competitors with new USP 9

10. Status Quo Strategy Implementation Outlook Tremendous decrease in revenue and operating income. in $ bn. in $ mn. Financial KPIs 10 700 650 9.5 600 COGS: 72 % 550 9 500 - 10 % Net loss $ 673 mn. 8.5 450 400 8 350 Net loss change 2,039.5 % 300 - 48 % 7.5 250 Operating loss 702 mn. 7 200 2011 2012 2014 2016 2017 2018 2019 Revenue Operating Income $ 657/sqft Still producing a significant revenue major changes in operation have to be undertaken 10

11. Status Quo Strategy Implementation Outlook Financial grid shareholder overview in $ 60 Financial KPIs 50 40 Stock price: 5 $ 30 Basic loss per share 6.59 $ 20 RoA: - 16 % 10 0 Cash increase by 90 % 2014 2015 2016 2017 2018 2019 2020 Stock price There is still room to move just no room left to make a mistake 11

12. Status Quo Strategy Implementation Outlook Product portfolio. REVENUE BY SEGMENT REVENUE BY SEGMENT CHANGE IN % CHANGE IN % Game hardware Pre-owned game products Digital Other Game software Game accessories Collectibles Game hardware Game software Pre-owned game products Game accessories Digital Collectibles Other 8% 5% 5% 15% 15% 20% 10% 10% 11% 5% 5% 15% 15% 23% 23% 13% 18% 6% 27% 27% 24% Shift in revenues from products 12

13. Status Quo Strategy Implementation Outlook Gross profit by segment. REVENUE BY SEGMENT REVENUE BY SEGMENT Game hardware Pre-owned game products Digital Other Game software Game accessories Collectibles in % Gross profit 100 88.5 90 80 5% 5% 70 15% 15% 10% 10% 60 50 43.4 5% 5% 40 33 32.7 30.5 30 21.5 15% 15% 23% 23% 20 8.5 10 0 new video game hardware new video game software pre-owned products video game accessories digital collectibles other 27% 27% Gross profit Boost high margin products to regain profitability (especially pre-owned & digital) 13

14. Strategy 14

15. 15

16. Status Quo Strategy Implementation Outlook Status quo recap. How to ensure future success in rapidly shifting industry? Status Quo Strategy Implementation Need to pivot offline business Huge & loyal community Protectionist game publishers 16

17. Status Quo Strategy Implementation Outlook Key success factors. Short-term impact Strategic decision must be based on predefined criteria. Growth potential Cost/Revenue Feasibility Each alternative must be evaluated equally. Strategic fit 17

18. Status Quo Strategy Implementation Outlook GameArena 2022 18

19. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Sony Ubisoft Electronic Arts 19

20. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Sony Ubisoft Electronic Arts 20

21. Status Quo Strategy Implementation Outlook Managing the offline presence. Extend shop leases Phase-out shop leases Growth potential online *offline Market attractiveness *offline presence as retailer 21

22. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Sony Ubisoft Electronic Arts 22

23. Status Quo Strategy Implementation Outlook A new offline experience. Business as usual (stay retailer) Criteria Add in-store experiences Focus on physical sales Short-term impact Growth potential Cost/Revenue Feasibility Strategic fit 23

24. Status Quo Strategy Implementation Outlook A new offline experience. Business as usual (stay retailer) Criteria Add in-store experiences Focus on physical sales Short-term impact Growth potential Cost/Revenue Feasibility Strategic fit Addition of in-store experiences will leverage customer loyalty and will differentiate the portfolio 24

25. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Sony Ubisoft Electronic Arts 25

26. Status Quo Strategy Implementation Outlook Leveraging the GameStop s loyal community. Tournament streaming platform Criteria Business as usual Community platform Short-term impact Growth potential Cost/Revenue Feasibility Strategic fit 26

27. Status Quo Strategy Implementation Outlook Leveraging the GameStop s loyal community. Tournament streaming platform Criteria Business as usual Community platform Short-term impact Growth potential Cost/Revenue Feasibility Strategic fit The highly engaged community will create content and valuable data for big data analytics 27

28. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Sony Ubisoft Electronic Arts 28

29. Status Quo Strategy Implementation Outlook Securing the supply of products. Deepen cooperation with publisher Criteria Business as usual Produce own games Short-term impact Growth potential Cost/Revenue Feasibility Strategic fit 29

30. Status Quo Strategy Implementation Outlook Securing the supply of products. Deepen cooperation with publisher Criteria Business as usual Produce own games Short-term impact Growth potential Cost/Revenue Feasibility Strategic fit Exclusive cooperation will secure the supply of products and boost GameStop s brand 30

31. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Sony Ubisoft Electronic Arts 31

32. Status Quo Strategy Implementation Outlook Choosing a viable partner. Portfolio of games Ubisoft Ubisoft offers a great variety of established games along with a huge community of loyal fans. EA Games Blizzard Community size/ Brand reputation 32

33. Status Quo Strategy Implementation Outlook GameArena 2022 The path to success. GameStop Offline presence Phase-out contracts Extend contracts Products/ services Focus on physical sales Business as usual Add experiences Customer loyalty Community platform Tournament streaming platform Business as usual Product supply Cooperate with publisher Business as usual Produce games Cooperation partner Blizzard Ubisoft Electronic Arts 33

34. Status Quo Strategy Implementation Outlook Turning a vision into a plan. How to ensure future success in rapidly shifting industry? Status Quo Strategy Implementation Need to pivot offline business New type of offline experience Huge & loyal community Leverage loyalty & analytics Protectionist game publishers Securement of supply 34

35. Implementation 35

36. Status Quo Strategy Implementation Outlook Turning a plan into a reality. How to ensure future success in rapidly shifting industry? Status Quo Strategy Implementation Need to pivot offline business New type of offline experience Games clubs Huge & loyal community Leverage loyalty & analytics Community platform Protectionist game publishers Securement of supply Ubisoft cooperation 36

37. Status Quo Strategy Implementation Outlook Turning a plan into a reality. How to ensure future success in rapidly shifting industry? Status Quo Strategy Implementation Need to pivot offline business New type of offline experience Games clubs Huge & loyal community Leverage loyalty & analytics Community platform Protectionist game publishers Securement of supply Ubisoft cooperation 37

38. Status Quo Strategy Implementation Outlook Shift focus of offline stores to consumer experience with games clubs. Phase out 2.500 stores in 5 years Setup gaming clubs for different cities (start 51) Membership fee $20 / month (first month for free) Play all games and get training (staff) Gaming Club: Retail area L.A. Galaxy Games Club area Benefits Cooperation with soccer clubs Increase cross-selling by 15% (new & used games) Increase sales / sqft by 20% $ 2.04 mn. add. revenue in 2021 Cashier Gaming clubs will capitalize on strong and loyal community 38

39. Status Quo Strategy Implementation Outlook Turning a plan into a reality. How to ensure future success in rapidly shifting industry? Status Quo Strategy Implementation Need to pivot offline business New type of offline experience Games clubs Huge & loyal community Leverage loyalty & analytics Community platform Protectionist game publishers Securement of supply Ubisoft cooperation 39

40. Status Quo Strategy Implementation Outlook Develop online platform to further boost online sales. Enhance existing online website with community feature Include members of PowerUp Rewards TM Include membership of clubs Customized offers based on big data GameStop Talk about latest games Exchange games with your friends (fee for GameStop Streaming in store competition Connect with your local games club Community Video Games Accessories Benefits Increase online sales by 10% Decrease in COGS by 10% Online platform will be missing piece in existing offers 40

41. Status Quo Strategy Implementation Outlook Turning a plan into a reality. How to ensure future success in rapidly shifting industry? Status Quo Strategy Implementation Need to pivot offline business New type of offline experience Games clubs Huge & loyal community Leverage loyalty & analytics Community platform Protectionist game publishers Securement of supply Ubisoft cooperation 41

42. Status Quo Strategy Implementation Outlook Cooperate with Ubisoft to ensure access to great products. Ubisoft games will be predominantly offered in games clubs Explore games exclusively 2 weeks prior to launch in games clubs Well known games Assassins Creed and Tom Clancy series offer a lot merchandise Boost foot traffic to stores by 10% Increase in accessories, collectibles and others by 10% Securement of product supply The new Assassin s Creed - End Game Test the game exclusively in your next GameStop Club 2 weeks before launch Benefits Cooperation with Ubisoft will be new USP for your brand and boost all existing offers 42

43. Status Quo Strategy Implementation Outlook Contingencies. impact 1 No interest of Ubisoft in cooperation Shift to Electronic Arts 1 2 Low customer interest in games clubs Increase marketing Reduce membership fee for the start 2 3 3 Technical issues with online platform Increase expanses in IT team probability Several contingencies have been evaluated but mitigation actions are available 43

44. Status Quo Strategy Implementation Outlook Roadmap. 2020 Q1 2021 Q1 Cost (in$ mn.) Q2 Q3 Q4 Q2 Q3 Q4 Games Clubs Phase out 2.500 stores over the next 5 years 2.3 Shift employees (if possible) 4.5 Restructure 51 stores 1.8 Marketing 3.2 Online business Develop platform 12 Integrate in online stores 1.3 Big Data algorithm 1.5 Product supply Cooperation with Ubisoft 0.6 Total cost: $ 27.2 mn. 44

45. Status Quo Strategy Implementation Outlook Additional opportunities once everything is implemented. Expand offline experience globally Add VR / AR games Online tournaments 45

46. Outlook 46

47. Status Quo Strategy Implementation Outlook Product portfolio. REVENUE BY SEGMENT REVENUE BY SEGMENT Game hardware Game software Pre-owned game products Game accessories Digital Collectibles Other 5% 5% 15% 15% 10% 10% 5% 5% 15% 15% 23% 23% 27% 27% Increase in high profit products 47

48. Status Quo Strategy Implementation Outlook Financial outlook increase operating income. in $ bn. in $ mn. Financial KPIs 13 800 12 700 COGS: 63.9 % 11 600 $ 788/sqft 10 500 9 400 8 300 7 200 2017 2018 2019 2020 2021 2022 2023 Revenue Operating Income Increase operating income to become profitable again 48

49. Monday morning actions. Plan workshop with regional store managers Contact Head of Sales of Ubisoft Set up meeting with merchandise team 49

50. We strive for your success. GameArena 2022