Game Stop has announced that because of plummeting sales and earnings in 2016, it will close down at least 150 of its stores. This represents 2 to 3 percent of its 7,500 stores globally. The main reason for the downward spiral of their sales has been digital downloads. Their customers prefer downloading straight from the game’s online store instead of buying physical copies of the game.
Last year, GameStop’s sales decreased by 14%. In the last holiday season, sales went spiraling down by 19%. The results showed that its 4th quarter profits went down 16%.
Their share prices reflected this steep drop in earnings as the shares of Game Stop went down by 12%.
The stores that were most affected were its U.S. stores, so it is very likely the 150 stores that it will close down will be from the U.S.
As a result of this trend of digital downloads of games, Game Stop will seek to expand its non-gaming businesses such as their collectible stores. It intends to boost its collectible stores by opening 35 this year. This will boost the number of their collectible stores to 121.
The outlook for their non-core business is optimistic. The collectibles division has been doing particularly well. Last year, its sales went up by 59.5% and this year, the sales for collectibles is projected to grow further by 30 to 40 percent. One of its retailer brands in this division is ThinkGeek which posted a 28% increase in sales because of strong interest in Pokemon toys and gear.
However, Game Stop is not shutting down its gaming business. It is particularly optimistic with the current consoles on the market, especially the Nintendo Switch. Game Stop’s CEO J. Paul Raines, said, “The Switch has provided a dramatic lift in traffic in stores and has real potential to be Wii-like in its ability to expand the gaming category from core to broad audiences.”
Game Stop is also very optimistic of its Technology Brands Division which has the cellphone retailer Spring Mobile which had a solid 44% sales increase in the 4th quarter of 2016.
Globally, Game Stop had a 13.6% drop in sales. Regarding hardware, sales dropped by 29% while software sales plummeted by almost 20%.
Raines said, “We encountered stiff headwinds as we completed the third year of the console cycle.”
Sales of Nintendo’s hybrid console is on the rage, and this year, Nintendo intends to double their production of it to 16 million units.
Other competitions for Game Stop include Amazon, Walmart, and Best Buy. The plague of digital shopping and downloads have plagued other brick and mortar retailers like Sears and J.C. Penney as they have also announced the closure of many of their branches.
Larry Perkins, CEO, and founder of Sierra Constellation Partners, offers an analysis of the gaming market: “Not only are they getting hammered by the online retailers and big box that have an inherent cost advantage through no retail real estate footprint or a much larger footprint that they can leverage with other products, but the movement to mobile-based games is creeping up mightily.”