While a lot of businesses and markets have struggled during the pandemic, video gaming has been experiencing a boom. With stay-at-home orders, lay-offs, and canceled events, people from young to old fired up computers and consoles to dive into other worlds or as a way to hang out with friends. So if video games were popular during 2020, it would seem like as a video game retailer, GameStop would reap much of the financial benefits for the high demand.
Well, that hasn’t necessarily been the case. GameStop tried to claim it was an essential business, a declaration that was met with scorn and objection from governments and the public at large. So like many other stores, GameStop was forced to shut down locations and look for more COVID-19-safe alternatives like curbside pickup. The closures combined with a general downturn in traffic meant that although its ecommerce side grew exponentially, it couldn’t counter the loss for store sales.
Even as the worst of the recession slowly subsided, GameStop faced another challenge: the arrival of the PlayStation 5 and Xbox Series X|S. That meant many gamers were holding off on buying consoles and accessories, saving their money for their next gen versions. After their release, unlike many competitors who were limiting their stock to online orders, GameStop offered the systems in-store. The arrival of these next-gen systems has led to November sales rising 16.5%, which was great news considering their Q3 sales fell worse than expected (24.6% vs 20.5%) and 30.2% compared to the same time last year.
But a recent store event for the latest gaming consoles led to much frustration, especially from employees. According to news reports and social media, on December 12th, GameStop revealed customers could — and only could as there was going to be no online availability — come to their nearest GameStop and place an order for Microsoft’s or Sony’s latest console.
Some workers found out maybe an hour beforehand, others minutes before the public announcement, and many only as they were being swamped with questions about PS5 and Series X|S. Because, predictably, as news spread that stores would have some stock available, crowds began to form at GameStop locations. Not only that, their store systems had issues, leading workers forced to keep refreshing pages and shoppers loitering in stores or on sidewalks as they waited for orders to process. Some report they waited hours in vain as some stores oversold.
GameStop apologized for this, saying that this was meant to reward loyal customers and prevent scalpers and bots from snagging all the consoles.
Negative publicity like this is certainly what investors don’t want to see. Stocks for GameStop are up over 133% since the beginning of the year (about $14 compared to $6 in January), and it represents a dramatic turnaround from the low of about $3 in April. But it did dip after their latest sales report, and GameStop plans to raise about $100 million through stock to help pay down debt.
Another move they’re making to improve their balance sheet is closing more stores, about 250 more than they had predicted earlier. This would still leave GameStop with 3,000 US locations, but that still represents losing about 30% of stores since 2017.
GameStop does expect good news in Q4 because of the holidays and the new consoles, but even though their November sales were up, retail as a whole fell 1.1%, much worse than expected. This was followed up by a revised analysis for October which showed a decline versus an initially-reported increase. So even though collectibles and web sales combined with reducing expenses and tax breaks led to a significant reduction in how much GameStop lost compared to a year ago, consumers uneasy about the coronavirus and relying on items prone to selling out may not quite lead to the winning strategy for December and Q4 that GameStop wants.
Another issue is Cyberpunk 2077. While it was expected to be a blockbuster title partially thanks to the promotion by actor Keanu Reeves — and in many ways, it is — the game’s poor performance on PlayStation 4 and Xbox One’s cause game-breaking glitches, frame drops, and DMCA strikes even when copyrighted music is supposed to be disabled.
Warning: the below video is of a game rated M for mature, recommended ages 17+.
Some of these happen on other versions as well, but the game runs best on Windows PC, which is the only way reviewers could test the game — and only upon release.
Game developer CD Projekt Red apologized for the game’s lackluster-to-poor performance, saying they took the “wrong approach” on those consoles and that Sony and Microsoft must have assumed CD Projekt Red would fix the game, which didn’t happen. Cyberpunk 2077 has already had some patches to address issues, and bigger ones are expected in early 2021 to make the game more stable on Xbox Ones and PS4s. But the game’s social media account suggested unhappy players file for a refund.
…Except, not so much a refund from them as the store it was purchased at. GameStop, like Sony and Microsoft via their digital venues, are pointing the finger at CD Projekt Red.
Of course, it isn’t shocking that a retailer would refuse to accept a return of an open game, but the way the developer makes it sound like this is a voluntary recall has caused a lot of frustration and overwhelmed systems. Cyberpunk 2077 was heavily promoted, such as this page from a GameStop ad in November.
A big-name title getting a negative reception will also likely affect December’s sales for the video game chain.
So while it’s good November and December are looking good for GameStop (although I wonder about sales vs. profit considering they had doorbuster games for less than Walmart or any other competitor and likely sold a bunch of used games for less than the cost to acquire them), the chain still has a mountain to climb. The rush over PS5 and Series X|S consoles will soon subside, and the current release calendar for either system is lacking a lot of exclusives and/or completely new games that aren’t remasters or available on current Sony/Microsoft consoles. Rivals are trying to lure customers with their own promotions (Best Buy likes to offer freebies like steelbooks, Walmart sells most new games $10 off MSRP), and their larger stores and variety makes it easier and/or more convenient for many shoppers as COVID-19 surges.
But those are all expected challenges for a video game chain. The in-store surprise event though…that’s an incredible way to try to sabotage yourself. Even though there are almost always going to be frustrated shoppers when there’s a hot-ticket item for sale, to treat your employees so badly, to offer them up like sacrificial lambs to a potentially volatile populace? Awful.
Also, if executives couldn’t see this promotion ending badly, it makes you wonder about their long-term plans. A former Chewy executive with a 10% stake in GameStop recently released a letter to push back against what he feels is a bad trajectory for the company, saying the current CEO “appears committed to a twentieth-century focus” with too many stores and not enough focus on GameStop’s website and improving customer service.
I’m guessing “letting employees know to expect a rush of customers in under an hour and having every single store in the company accessing the same system and SKUs” is not what he’s proposing.
But they are making some changes. Based upon my experience and various posts, corporate had a new idea in regards to store displays…as in, you don’t know if what’s on display is actually in stock.
Like…what? Yes, I was never thrilled that a “new” game from GameStop meant that employees opened the seal, put the disc/cartridge in an envelope (and perhaps played it a bit), and then put cases on the floor. That’s good they ended that often-panned policy. But to walk in, have an employee basically tell me, “Hey, all this stuff on the wall is a lie. We have only some of them, and we also have others you don’t see!”? It made me question why I walked in.
Most other big chains seem to have shifted to putting video games behind cases or locked hangers (at least the non-value/heavily discounted ones), making it impossible to read the back cover description or anything. But to go to a store and to look at stuff that may require an online order — something a vast majority of people have been doing at least part of the time in a pandemic in the comfort of their own home? And if you want to take advantage of a GameStop promotion like buy two get a third free, you’d have to keep coming up to the workers and asking them to look things up? That just seems crazy to me. Workers have tried to preempt customer frustration by handing them printed lists of their store’s inventory, but that takes away from the whole visual hands-on experience that is the centerpiece of brick-and-mortar stores!
So while I am happy to have scored some good deals during Black Friday at GameStop, I have to say my opinion of them has dropped recently. I don’t know exactly what GameStop needs to do to stay competitive in this difficult market, but dumping news on your employees or advertising things not readily available is not what I as a consumer want to see. That one investor may be downplaying the importance of brick-and-mortar locations, but he is certainly right in that GameStop needs to do a better job of analyzing its business. Right now, GameStop seems like it’s being led by clueless executives and management who have little knowledge or insight of in-the-field operations, and that usually doesn’t end well for companies.