GameStop Strategic Analysis and Recommendations

Aalto Consulting from Aalto University School of Business presents a strategic analysis for GameStop in the new digital-first economy. The report highlights challenges facing the company, including retail shifts and competition, and suggests actions like store closures, platform development, and enhancing customer engagement to address these issues.

• GameStop
• Strategic Analysis
• Retail Industry
• Digital Transformation
• Aalto Consulting

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1. Keep calm and carry on gaming! To the Board of GameStop From Aalto Consulting Aalto University School of Business

2. Executive summary What is GameStop s place in new digital-first economy? Challenges: Crumbling physical retail Shift in industry structure Ruthless competition Downsize by closing stores, create a new Platform and mobile app, create e- commerce segment and boost brand name and increase customer engagement. Executive summary

3. Agenda Analysis Alternatives Implementation Conclusion

4. Retail industry US retail forecasted to rise 3.8% YOY to top $3.8 trillion USD in 2019 A shift to online retail (14.3% of total retail sales) A general decline in mall-oriented foot traffic Main outcome: Figures remain strong with a shift to e-commerce Analysis Executive summary Alternatives Implementation Conclusion

5. Gaming Industry Annual growth 9.6% YOY Multi-billion-dollar industry Shift away from physical game disks to downloaded programs and online streaming services Main outcome: Growing and transforming industry Analysis Executive summary Alternatives Implementation Conclusion

6. The last decade of GameStop Stock price, $ 63 54 5 2008 2014 2020 Main outcome: Aggressive decrease within the last years Analysis Executive summary Alternatives Implementation Conclusion

7. Revenue 9%4% 2% 30% Total revenue: $8,285.3 12% 22% 21% Main outcome: The biggest revenue comes from new video game software Analysis Executive summary Alternatives Implementation Conclusion

8. SWOT Strengths: recognized brand, active on all legacy social media channels, sales per sqft competitive, product advantage in the collectibles market Challenges: net income negative, sales & margin & store traffic down Opportunities: The rise of online gaming communities and esports, rising interest towards gaming Threats: large and fiercely contested market, industry outlook shift Main outcome: The biggest revenue comes from new video game software outlook shift Main outcome: Well-recognized brand with a threat of industry Analysis Executive summary Alternatives Implementation Conclusion

9. Competitors: traditional (1/2) Walmart $75 bn Size GameStop $8 bn Target $75 bn BestBuy $25 bn Kmart $25 bn Online competitors $5 bn Annual revenue Analysis Executive summary Alternatives Implementation Conclusion

10. Competitors: online (2/2) Origin and GameFly by Electronic Arts with over 50 mn registered users Steam: world s largest digital distribution platform Uplay Amazon Main outcome: Competitors in both traditional and online retails Analysis Executive summary Alternatives Implementation Conclusion

11. Future trends in the gaming industry Driven by the connectivity of the internet and community-building phenomenon it empowers Interest in e-sports tournaments Online streaming site earning more popularity Retails prohibited from selling digital download codes Main outcome: Competitors in both traditional and online retails Analysis Executive summary Alternatives Implementation Conclusion

12. Agenda Analysis Alternatives Implementation Conclusion

13. Criteria for evaluation What is GameStop s place in new digital-first economy? Company side: Product side: Strategy fit Global trends fit Ease of implementation Customer engagement Cost of implementation Market position Alternatives Executive summary Analysis Implementation Conclusion

14. Alternatives 1 2 3 Sell Merge with Steam Digitalize to Netflix Alternatives Executive summary Analysis Implementation Conclusion

15. Alternatives 1 2 3 Digitalize Sell Merge with Steam to Netflix Access to resources Synergies on customer base side New business for Netflix Dominate gaming online and offline markets Synergies on customer base side Move to e- commerce Create own gaming platform Alternatives Executive summary Analysis Implementation Conclusion

16. Alternatives Sell Merge Digitalize ? + + - ? ? + + + - - - + + + + ? ? Global trends fit Customer engagement Market position Strategy fit Ease of implementation Cost of implementation Alternatives Executive summary Analysis Implementation Conclusion

17. Alternatives Sell Merge Digitalize ? + + - ? ? + + + - - - + + + + ? ? Global trends fit Customer engagement Market position Strategy fit Ease of implementation Cost of implementation Alternatives Executive summary Analysis Implementation Conclusion

18. Agenda Analysis Alternatives Implementation Conclusion

19. Recommendation Downsize by closing stores, create a new Platform and mobile app, create e-commerce segment and boost brand name and increase customer engagement. Implementation Executive summary Analysis Alternatives Conclusion

20. Implementation 1/4 What? Downsize to 10% of current physical presence Why? To decrease operating costs and to ensure capital for new investments Implementation Close 4500 stores: 900 stores in 2020, 700 in 2021, 600 in 2022, 1200 in 2023 and 1800 in 2024 Sell fixed assets Hire Change management consultant team (1+3) Implementation Executive summary Analysis Alternatives Conclusion

21. Implementation 2/4 What? Go digital: create Platform and mobile app Why? To acquire online presence and offer new digital products (Enter a new market) Implementation Hire product manager and 10 developers to create the platform and another 5 developers to create the app (1.5 year and 8 months respectively) Create the platform and the app Negotiate and create partnerships with gaming companies Hire a data analytics manager and 2 DA specialists Implementation Executive summary Analysis Alternatives Conclusion

22. Implementation 3/4 What? Create e-commerce segment (both new and second-hand products) Why? To deal with the retail decline and acquire market share in commerce (retain customers and gain new ones) Implementation Hire e-commerce manager and 3 specialists Hire distribution manager to operate the e-commerce distribution channel Develop the e-commerce channel Implementation Executive summary Analysis Alternatives Conclusion

23. Implementation 4/4 What? Marketing campaign and branding initiatives Why? To make known that the company goes digital. Gain online visibility and ensure customer engagement Implementation Deploy Big Data Analytics for tailoring customer engagement with customized and personalized offering Create gaming areas and host competitions by leveraging the brand name and attract customers Marketing and branding campaign spreading the message that GameStop has a strong digital presence and will continue offering high value up-to-date customized products Implementation Executive summary Analysis Alternatives Conclusion

24. Implementation plan Action 2020 2021 2022 2023 2024 Close store and sell assets Hire change management team Hire product manager and team Create Platform Create mobile app Partnerships with gaming companies Hire a data analytics manager and team Hire e-commerce manager and team Hire distribution manager and team Develop the e-commerce channel Marketing and branding campaign Create gaming areas Host competition events Implementation Executive summary Analysis Alternatives Conclusion

25. Risks and Mitigation Risks Probability Impact Low Mitigation Delay of development Hire more developers Medium Retail decline faster than anticipated Increase pace of digitalization, renegotiate lease agreements and close stores faster Medium Medium New products appear Create a BI team to constantly monitor the trends Medium High Established competitors react by more offering and or lower prices Closely observe competitors actions and unusual shifts and follow rapidly Low Medium Customers react poorly to marketing / branding campaign Realign campaign and make use of the successful channels Low Low Implementation Executive summary Analysis Alternatives Conclusion

26. Financial Analysis Financial Assumptions Renew only 10% of the expiring lease agreements Average store size is 2100 sqft Overhead costs are going to decrease by operational efficiency improvements Operating margin is going to grow to 50% No more need for Goodwill impairments Implementation Executive summary Analysis Alternatives Conclusion

27. Financial Analysis Lease agreement analysis Total cost savings from the lease agreements in the five years : 126 m$ Implementation Executive summary Analysis Alternatives Conclusion

28. Financial Analysis Costs of Implementation plan Total costs 4801 4505 42374200.54086.2 5 2020 2021 2022 2023 2024 Implementation Executive summary Analysis Alternatives Conclusion

29. Financial Analysis Revenue analysis Revenue is going to decrease but the operational efficiency is streamlined to the point where operational margins are going to increase Implementation Executive summary Analysis Alternatives Conclusion

30. Agenda Analysis Alternatives Implementation Conclusion

31. Conclusion What is GameStop s place in new digital-first economy? Challenges: Crumbling physical retail Shift in industry structure Ruthless competition Downsize by closing stores, create a new Platform and mobile app, create e- commerce segment and boost brand name and increase customer engagement. Conclusion Executive summary Analysis Alternatives Implementation