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GameStop Reports Another Dismal Quarter: How Can the Company Reinvent Itself?

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GameStop (GME - Free Report) shares have been sliding after the video game retailer reported disappointing Q2 earnings after the closing bell on Tuesday. GME is trading down about 1.4% on Thursday, but plunged almost 10% Wednesday. Year-to-date, the stock has plummeted over 64%.

The company’s weak Q2 performance follows its decision to eliminate its quarterly dividend payments back in Q1. GameStop is in the middle of a reinvention, choosing to prioritize its balance sheet in order to avoid a J.C. Penney type mishap. GameStop is looking to revitalize itself from the ground up, but this most recent quarter didn’t show much promise about a comeback. What can the company do to bring back the glory days?

How GameStop Can Revive Its Business

GameStop needs to make some major changes if it wants to survive the onslaught of the digital marketplace, and the impact it has had on traditional brick and mortar shops. The company’s sales have steadily declined due to gamers turning to digital storefronts for their games. Microsoft’s (MSFT - Free Report) Xbox Game Pass and Sony’s PS Now also must be addressed by GameStop. The former gaming hub must adapt its old-fashioned stores to what the modern gaming consumer wants to see in shops; the company could consider outfitting its shops for esports enthusiasts, monetizing its collectible items, and revamping its loyalty program in a way that caters to digital purchases.

Over the past few years, esports has taken the world by storm; it’s especially popular with people between the ages of 18-34. In 2019, it was estimated that the total audience of esports would grow to 454 million viewers and revenue would increase to over $1 billion. One way GameStop could easily attract more competitive gamers, as well as increase store traffic, is to expand their presence in esports.

Successfully bringing in esports enthusiasts would, in turn, bring their follower counts on their YouTube (GOOGL - Free Report) or Twitch (AMZN - Free Report) accounts, which are central to the growth and promotion of esports. GameStop could potentially hold amateur to semi pro tournaments for eager players looking to test their gaming skills. The excitement of playing for some type of prize and bragging rights should be enough to entice participation.

The company should also look to capitalize on the only growing segment of its business: its collectible items. For example, Minecraft is the best-selling video game of all time, and is extremely popular with kids between 6-13 years old. GameStop, which offers collectible items from the game like torches, pick axes, and the coveted diamond sword has benefited from the demand. Young kids and older consumers alike enjoy collectible video game items, and GameStop should focus on capitalizing on this demand. Focusing on offering unique collectible items that would appeal to young and older consumers could help increase store traffic as well. GameStop stores look the same as they did 15 years ago, and restructuring its stores to better appeal to what gets modern consumers in the door will be key going forward.

GameStop has lost a large amount of its consumers to digital storefronts, not just because of the convenience of buying games from home, but because these store fronts offer enticing subscription-based memberships that offer free games and discounts on various other games. Reconfiguring its existing royalty program to better cater to digital transactions rather than physical game purchases would be a big first step in gaining back those customers.

The company is also known for carrying classic video games, and a rewards program that offers backward-compatible games would bring in many nostalgic players. GameStop could also involve their collectible merchandise in their rewards program, which would be sure to kickstart its program.

Bottom Line

GameStop is the latest retailer falling victim to the expanding digital market, and right now, is at risk if it doesn’t find a way to reinvent itself. The company was once a hub for gaming and seems to be desperately hanging on to its old self. A complete transformation focusing on esports and collectibles could be the answer for the company to keep its traditional brick and mortar shops up and running.

The modern consumer likes to be in an interactive environment while shopping, and restructuring its stores into an interactive and stimulating experience for its consumers could help drive store traffic. Ecommerce will likely prove to be the most difficult transition to make but will be pivotal to the company’s survival and success.

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