The business case for GameStop

The business case for GameStop

Company background

Gamestop is an American retailer of video games, consumer electronics, and gaming merchandise. The retailer has a network of 5830 stores in the United States, Canada, Australia, New Zealand, and Europe. The brands under which the retailer operates are Gamestop, EB Games, ThinkGreen, and Micromania.  The retailer also owns a video game magazine called Game Informer.

The retailer was founded in 1984 by James McCurry, and Gary M. Kusin, initially named Babbages. By 1987 the company began to sell Nintendo games. It went public in 1988, and by 1991, video game sales accounted for two-thirds of Babbage’s sales. Gamestop purchased EB Games in 2005, expanding its operations into Europe, Canada, Australia and New Zealand. It also acquired Rhino Video Games from Blockbuster for an unknown amount and Free Record Shop’s Norweigian stores in 2008.

The retailer had been doing well until 2016 when there the market for video gaming changed drastically from the physical game media to the digital versions of the game. The reasons cited for the decline included industry weakness, promotional pricing pressure, and lower in-store traffic. In 2016 its shares on the stock market dropped by 16 % and a further 8% in 2017 after Microsoft announced its Xbox Games pass service. In 2018, financial results showed the most significant loss in the company’s history. To counter the drop in revenues, the company partnered with an outside design firm R/GA to rejuvenate its stores to concentrate on competitive gaming and retro-gaming in 2019. Currently, the firm operates under two segments; video games and technology brands, and it owns the following brands; Game Informer, GameStop PC, Trade-ins, GameStop TV, Pre-order bonuses, MovieStop, GameStop Kids, Game Trust Games, and Simply Mac.

Challenges/Issues assigned: managing competition and maintaining market share

GameStop has experienced a disruption in its business for some time due to competition from other video game providers. The company’s sales have, in recent times, dipped to worrying levels. The retailer’s primary business has been in the selling of physical video gaming products. As a result of the advancement of technology, however, the company has faced disruption from mobile devices, digital distribution, and intense competition. The business has had to change its strategy in order to remain relevant in the market by adapting to the changes and keeping pace with its rivals such as Microsoft. With the competition, its share of the market has also declined, and the retailer is struggling to maintain its market share.

Organization of business

GameStop’s business model can be broken down into several segments as follows;

Customer segments

The company has a mass-market business model that has no considerable differentiation between customer segments. The form targets its offerings at any customer seeking video game and technology products.

Value proposition

The company provided four main value propositions, which include accessibility, convenience, innovation, and brand/status. Accessibility is enhanced by the provision of a wide range of options. Since it has acquired other game and tech firms in the industry, such as EB Games and Rhino Video Games, it has helped to diversify its portfolio and significantly expand its capacity. The retailer’s store is situated in high traffic shopping centers in major cities to increase its visibility. On convenience, the firm has simplified life for its customers through its buy-sell-trade program, which enables customers to trade-in video game software/hardware, tablets, and cell phones they no longer use or play. Trade credits are offered to the customers to use for new purchases. Innovation is vital for GameStop. The firm operates the GameStop Institute, which is a unit committed to establishing collaborations with learning institutions and other technology firms to explore and deliver innovative technology and business solutions through research and development.

Channels

The company’s primary channel is the network of retail stores in the countries it has set foot, including the USA, Canada, Australia, and Europe. It is also present on its website and other specific brand websites. It also promotes its offerings on websites and major social media pages in addition to conventional advertising on mass media and in-store marketing channels.

Customer relationships

The company uses a self-service approach to its customers, where there is little interaction between customers and employees. Customers get the information they need from the company website about the availability of products, location of stores, etc.

Key partners

The company’s key partners are the network of manufacturers, distributors, and software developers that avail the products that it sells. It also partners with other third parties to promote it on their websites, social media pages, among others, with referrals coming from the third parties earning a commission for the third parties.

Revenue streams

The company has only one revenue stream, which is the revenue it generates from the sale of its products in its different channels.

Team responsibility

Randy Roach headed the team working on the business case as the Store Leader and Cosy Cox as the Assistant store leader.

Goals of the team

The objectives of the group included conducting a background check on GameStop and its business structure, exploring the challenges that the firm experiences, and suggest solutions to them and doing a SWOT analysis of the organization.

GameStop SWOT Analysis

Despite the challenges that GameStop has faced over the years, the firm has opportunities for improvement. These will be identified in the SWOT analysis below;

Strengths

Being one of the leading retailers of consumer video games in the world, GameStop has several strengths upon which to leverage its business case to help it succeed in the market. The strengths at its disposal will help the firm to consolidate its place in the market while also penetrating emerging markets. Based on the existing market conditions and internal environment, the following are the strengths of GameStop.

GameStop has a robust brand portfolio, which it has strived to build over the years, bringing into the market unique products targeting a wide variety of consumers. This is vital for the business in its efforts to venture into emerging markets across the globe. Secondly, the company has ensured a high level of customer satisfaction. The firm has a customer relations management section that addresses customer concerns guaranteeing that they get the best services. This, as a result, helps to fish over potential customers. Thirdly, the company has a reputation for penetrating new markets with ease. The result is the establishment of new revenue streams and a diversified economic cycle risk within the markets it operates.  Fourthly, GameStop has a robust free cash flow, which ensures that the firm has resources at hand to expand into new projects. Also, it has recorded much success in the development of new products through its research and development team. Lastly, the automation of activities by the firm has resulted to the consistency of quality to its products, which have enabled the company to scale up and down based on demand levels in the market.

Weaknesses

GameStop has faced several challenges constituting its weaknesses. The weaknesses on which the firm can work to improve on include the following. The company’s marketing strategy for its products is not as effective as it should be. The firm has not clearly defined the positioning and unique selling propositions, and this can result in attacks in its market segment from competitors. The structure of the organization is also only feasible with the present business model, which limits expansion into adjacent product segments. Besides, the company’s research and development trails other fastest growing players in the video gaming industry. Although the company invests heavily in research and development above the industry average, it has failed to compete effectively with other players in the industry in terms of innovation. In addition, the firm has been unable to carry out product demand forecasting, thus resulting in a high rate of missed opportunities as compared to its competitors. Lastly, the company has had limited success outside of its core business segment as compared to its competitors.

Opportunities

The company has opportunities for growth despite the weaknesses it faces. These include economic growth and rising customer spending after long periods of recession and slowed growth in the sector. This presents an opportunity for GameStop to tap into new customers and increase its share of the market.  Secondly, a new taxation policy by the state can significantly affect the way of doing business and open new opportunities for the company to increase its revenue streams. New technology by the firm can provide an opportunity to exercise a differentiated pricing strategy in new markets. This will enable the company to maintain loyal customers with quality service while luring new customers through value oriented propositions. Also, new trends in the consumer behavior can open up a new market for the firm’s products. As a result, the company can work to diversify into new product segments and build new revenue streams. In addition, decreasing transportation costs due to low shipping prices can reduce the cost of the firm’s products hence providing an opportunity for the company to make massive sales. The availability of stable free cash flow offers the company a chance to venture into new product segments.  More cash in the bank makes it available for investment in new technologies and new product segments.

Threats

There exist numerous threats to the growth of GameStop. Some of the imminent threats include cutthroat competition from other players in the gaming industry. Secondly, there are cases of shortage of skilled labor in some emerging markets, which makes the cost of labor very high. The company has inherently failed to release innovative products into the market, often developing products as a response to competitors’ products. Even so, the supply of the new products in the market has not been regular, resulting in high and low swings in the number of sales over the years. Fluctuation in the currency in some countries due to unstable political environments is also a threat to the success of GameStop. Another threat to the firm’s business in the rising cost of raw materials, which has a negative impact on the company’s profit margins. Given variations in policies in some of the emerging markets, the company may face various liability claims in those markets affecting its profitability.

Assumptions made

In conducting this business case, several assumptions were arrived at as follows; that GameStop’s profitability is dependent on the volume of sales from its products and not based on unethical methods of competition. It was also assumed that the company has the required management expertise to move it from its current level to the next level and that the weaknesses and threats being faced by the firm are not in any way related to the composition of the team. Besides, it was assumed that the company has the requisite resources to project it for upward growth, and the only requirement needed is the change in strategy to effect the upward progression. Lastly, it was assumed that the company’s customers would be keen to buy its products hence generating sufficient sales to make a profit in the long term.

Solutions and options

The challenges that GameStop is facing have resulted in massive disruptions to business growth and expansion. However, there are some initiatives that the firm can leverage to maintain relevance in the market while optimizing its profitability. The main growth initiatives that the company includes improving the existing stores and assortment rejuvenate its marketing strategy and enhance diversification.

In order to increase its footprint in the gaming industry, GameStop needs to improve its retail stores and the available assortment. Within the stores, however, there is also a need to build excellent customer experience and value addition. Ways in which the company can upgrade its store operations include reducing significantly underperforming stores. Underperforming stores are a liability to the company consuming profits made by well-performing stores, and therefore by cutting them down would result in improved profit margins. Another way to upgrade store operations is by adding new categories to their offerings such as smartphones, which will revitalize the business and add incremental sales by adding new classes. Besides, the retailer needs to capitalize on digital products. This is based on the realization that most consumers in the gaming sector consume media in digital formats, and as such, bringing, onboard digital products would expand its foothold.

Secondly, GameStop needs to invest in a smart marketing strategy. With the advent of more players in the gaming industry, there is a need to augment the existing marketing strategy to make it easy to engage with its customers. Ways to develop efficient marketing include expanding and monetizing its loyalty program to maintain a grip at its customer base. Also, the company can execute a smart marketing strategy through such initiatives as Black Friday sales to increase its sales.

Lastly, GameStop needs to consider future trends by diversifying its product offering. The research and development team should ensure that the company stays ahead in terms of new releases into the market. Through diversification, the company will be capable of remaining relevant in the ever-changing market. Diversification will help the company not only to sell video games but also several related products such as mobile handsets and wireless sectors, which is an ever-growing industry. Also, the firm should position itself to release virtual reality headsets, which are a revolution in the video gaming industry.

Financial impact and summary

GameStop is facing a financial crisis as a result of falling sales. The giant retailer is struggling to adapt to players’ switch to live streaming and subscription services, which have taken over the video gaming industry by storm. As a result, in the first quarter of the year, the retailer’s stock plunged by up to 18%, recording the lowest in recent times. It is projected that its sales will drop from between 5 and 10 percent. The company recorded a profit of $1.45 per share, falling short of the projected $1.58 per share. It posted sales of up to $3.1 billion, which was also short of the projected sales. Due to the tumbling business fortunes, the retailer has launched massive cost-cutting initiatives, including shutting down of nonperforming stores and reducing its staff with the aim of achieving a $100 million improvement in operating profit in the current year.

Final recommendations

From the preceding discussion, GameStop should undertake the following recommendations to hold onto its market share while penetrating new markets.

The success of the company lies in the way it will diversify its product portfolio in the face of competition. There is a need for the company to explore new product models, establish new customer segments, and invest in loyalty programs. This will help it counter competition from other players in the industry while increasing its revenue streams. The work of diversification should be undertaken by a committed research and development team with the aim of not only making releases that counter competitors’ products but products that are consistent with changing consumer preferences.

There is also a need for the company to conduct a customer needs assessment to determine what the gaming customer wants in a video game to establish what features they should incorporate in their future releases so that they will always be ahead of the competition. New product releases should be in tandem with trends in consumer behavior, which will inform how the retailer will establish new revenue streams and market segments.

The company should also strive to hire and retain highly skilled employees to drive its innovative agenda. Disruptions caused by high turnover rates can have a negative bearing on a company’s fortunes and therefore need better terms for employees to attract and retain the best talents.

The company should augment its marketing strategy to align it with emerging trends in the gaming industry. The marketing strategy should be able to clearly define its products’ positioning and unique selling propositions in order to counter the influence of competitors.