GameStop is under a lot of scrutiny this week, after a story broke regarding their "Circle of Life" system.
The story, first published on Kotaku by Jason Schreier on Wednesday, talked about the "Circle of Life," a program that GameStop has implemented over a decade ago, that has been abused by several GameStop districts in the past few months to years.
According to Kotaku, initial sources have stated that any new sales have cut into the circle of life program - meaning the sources at Kotaku have reported that they have forced customers to purchase used copies of games, and is threatening to fire any employees who fail to achieve their quotas.
The original story noted that GameStop stores across the country have been involved in shady business practices due to the circle of life program, however, it should be noted that not all stores or districts are following suit with such practices. In speaking with our own GameStop contacts at TechRaptor, who asked to remain anonymous for the purposes of this story, their own store districts have not emphasized any form of underhanded or anti-consumer tactics upon their customers.
While it may be difficult to verify completely, it appears the problem is a district manager issue, rather than a corporate-wide mandate. According to our contacts, employees were told around December of last year to try and focus more on the circle of life program as numbers have been slowing down, but in regards to the words of our contacts, their district managers have asked store managers to emphasize upselling as a more effective strategy for long term and short term customers, over purposefully withholding product from them.
This is also evidenced by Kotaku itself, who published a follow-up story of several testimonials from GameStop employees. Some of the employees noted that there have been managerial issues in the past, while others argued that most of these cases were "edge cases" at best. Part of the problem with GameStop stores is their district manager system (or district leaders, as GameStop calls them) is the enforcement on the managerial staff level. As one comment by an anonymous employee on Kotaku stated, "According to corporate policy, being below 50% on COL for 3 consecutive weeks is supposed to result in termination. Some district managers may enforce this, some may not."
The circle of life program is designed to entice customers into using GameStop as a primary service by focusing on trade-ins, used sales, pre-orders and reward card subscriptions as part of their monthly quotas. Outside of New product purchases, the used and pre-order market is very lucrative for GameStop and other retailers, raking in the majority of their business per year due to it being near 100% of the profits for the company.
These different percentage quotas are expected by GameStop to be a part of their day to day management, making them a requirement for employees at GameStop to try and push used and reservations on people. The quotas do change over time, but current numbers on average are around 10% for reservations, 35% for pre-owned sales, and 20% for trades. This means that if a store does $1,000 of business a month on average, it would need to do $100 in reserves, $350 in pre-owned sales, and $200 in trades, respectively to achieve their quota for the program.
GameStop suffered a Q3 loss for the holiday season, slashing expectations for Q4 as much as 18% after posting a 16.4% loss. Much of this loss came from in-store product not moving, including a 30.3% decline in console sales and a 22.8% loss in software sales overall for the season.
The biggest issue facing GameStop now is what to do next from these stories. The circle of life program will likely be retooled by the company, as stores resorting to these underhanded tactics to pad out their numbers is being encouraged not by a mandate from the company, but by pressures to make up sales. Lowering the sales numbers may lead to less pressure upon district managers and employees worldwide. A much more complex, issue involves the leadership from the district managers, as enforcement, use and abuse of this policy has been grossly uneven at best for the entire company.
Quick TakeWhile on the surface the problems at GameStop seem severe, it is very likely that it is a district by district issue, over a company-wide issue. Simply put, the district managers interpreting a mandate to emphasize the Circle of Life has gotten out of control.
GameStop did make a statement to Kotaku about how they will look into improving the Circle of Life program in the future, hopefully they also take into consideration those managers who have abused the system as well.
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