GameStop Closing 180–200 Stores (and That's Just the Beginning)

An announcement came out about GameStop closing 180–200 "underperforming" stores by the end of this fiscal year, a period of time that typically concludes in March for most companies. The lowest-performing stores will be shuttered over the next six months, although they won't be the end of store closures for the video game retailer.

GameStop Closing 3.5% of Its Stores

The 180–200 stores that are closing are considered "underperforming"; GameStop CEO James Bell stated in an earnings call that 95% of the company's retail locations were profitable. A bit of quick maths shows that 5% of stores are not profitable, and it's safe to assume that the stores being shut down are in this category.

"While [95% profitability] is an impressive statistic, we have a clear opportunity to improve our overall profitability by de-densifying our chain," Mr. Bell said as reported by GamesIndustry.biz. "That work is well underway. We are on track to close between 180 and 200 underperforming stores globally by the end of this fiscal year."

The Terrible Twos

Although no more than 200 stores are likely to shut down by March 2020, that won't be the end of the shuttering spree currently underway.

"And while these closures were more opportunistic, we are applying a more definitive, analytic approach, including profit levels and sales transferability, that we expect will yield a much larger tranche of closures over the coming 12 to 24 months," GameStop CEO James Bell added.

GameStop has been in the process of reorganizing its business as part of their "Reboot" plan. Part of this plan led to 50 employees losing their jobs due to consolidations of the businesses' regional structure.

 
 

Although the company is working hard to tighten its belt, GameStop may still not be profitable in the near future.

"We expect our year-over-year sales to be down over the next three to four quarters reflecting the end of [the console] cycle," James Bell said. "Compounding this negative impact on sales is the fact that console makers have confirmed the launch earlier than they have in the past. We anticipate that this will lead to much lighter title slate through the rest of 2019 and early 2020 given the end of the cycle timing for current consoles."

GameStop Second Quarter Heavy Losses

All of this may be discussed in part because GameStop's second-quarter continued its trend of heavy losses, with the only improvement being in collectibles. In their investor's report, they stated that included an overall 14.3% decrease in sales, and a net loss of $415 million for the quarter. They broke it down by category as follows:
  • New hardware sales decreased 41.1%, reflective of recent announcements for next generation console launches in 2020. 
  • New software sales decreased 5.3%, with growth in Nintendo Switch software titles more than offset by weaker title launches across other consoles in the quarter compared to last year. 
  • Accessories sales decreased 9.5%.
  • Pre-owned sales declined 17.5% with declines in hardware and software.
  • Digital receipts decreased 11.2% to $227.2 million due to weaker title launches in the quarter compared to last year.
  • Collectibles sales increased 21.2%, with continued strong double-digit growth in both domestic and international stores.
This has caused GameStop's stock to significantly decrease, with it falling from over $5 at the close of trading yesterday to $4.31 overnight and at time of writing is at $4.47 a share.

GameStop Reboot Plan

The company also explained what the GameStop Reboot initiative will entail to return it to profitability. GameStop closing a number of its stores as mentioned above is part of this and they outlined 4 points.
  • Optimize the Core: Here we see things like GameStop closing stores, firing employees, improving inventory management and increasing its number and focus on high margin products
  • Become the Social/Cultural Hub for Gaming: Comparing its idea to being the Church of Gaming, GameStop wans to focus on the store experience and being a hub for gamers
  • Build Digital Platform: GameStop wants to further build out its digital capabilities and cites the recent relaunch of GameStop.com as part of that
  • Transform Vendor Partnerships: What they plan here is less clear so here is what they said, "Transform our vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer."
 

What do you think of GameStop closing 180–200 stores over the next six months? Do you think the company will be able to survive in the long term? Let us know in the comments below!