Having been critiqued for their business model and recently engaging with a mass-firing, Andy Prizeman Nolan analyses what went wrong for GameStop, and where they could end up in the future.
The Story so Far
While they did maintain a monopoly in the world of gaming retail, market giants GameStop haven’t had the best of luck in the last couple of years. In an article from Business Insider from September of last year, it is reported that they would be closing between 180-200 stores before the end of that fiscal year. GameStop CEO Jim Bell didn’t do much to hide the grim reality of the situation, as he claims that this is simply the beginning of such mass closures. In the same Q2 conference call, he offered an insight into their approach in further closing stores down; "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.” These widespread closures came following two distinct waves of layoffs, including some within the upper echelons of the company.
GameStop has always been a juggernaut of the industry, with origins rooting as far back as 1984. With such longevity, expanding to approximately 5,700 stores across 14 countries, what could have happened to result in such a collapse?
Sales; Out of Touch?
In recent years, as the industry has grown on a much broader scale, GameStop is no longer the only option when it comes to buying products like consoles. Companies like Amazon offer another destination for customers to opt for the same service, also providing a cross-reference for them to consider potentially better offers and prices. After years of being the main source of all things video gaming, they seem to have struggled to adapt to a rapidly expanding market in a way that can still maintain its profit margin. In their attempts to hold onto their established customer-base, it becomes apparent that GameStop are suffering from the same digitalisation of the market that virtually maimed many music and film retailers. Simply put, downloading games from the preferred console’s market place is a more viable option for many; there’s no need to even leave one’s house to pick up a new release, absence of physical copies typically results in less issues faced by ageing or faulty discs, and, what could be the main driving factor, it’s usually cheaper. Market discounts are more frequent and offer higher savings on the same titles.
What has been a huge crutch for justifying physical copies of games is the additional gimmick of trade-ins. If you opt to buy a game in a store, there’s always the potential to trade it back to them, making some of your money back in the process. In theory, this is an excellent concept, but the reality of the situation is widely recognised by anyone who’s ever tried to utilise this service; the trade-in prices aren’t exactly fantastic. The returns they offer certainly serves them well in way of profit, but for the customer, the amount can oftentimes be downright laughable, to the point of becoming a running joke on many an online forum. Therefore, the idea of trade-ins is completely void to many people, so outside of the occasional special edition release, what is being offered by buying physically that isn’t already available easier, cheaper, and more conveniently online?
These issues have resulted in the company leaning into the merchandising aspect of gaming, affectionately dubbed ‘Loot’. Products like T-shirts, mugs and figures became a large stock priority. It is easy to see why; they’re easily marketable, relatively cheap for the most part, and carry a consistent margin. This margin, however, is slight. It has certainly helped them adapt to their predicament, but it’s not a sustainable model for a company the size of GameStop. In order to turn over some form of serviceable profit, the company turned to a new sales mantra: the ever-controversial ‘Circle of Life’.
The Circle of Life
The Circle of Life is a heavily mandated programme that executives within the company hoped would help them Hakuna Matata their way to better sales figures. This programme briefly summarises the life cycle of a game; it’s released as new, bought from the store, played, traded-in, and re-sold as used. A system like this is hugely beneficial on paper, given the previous discussion about how little they can be traded for when compared to the resale price. Simply put, preowned games make the company more money, which is where one of the biggest issues surrounding the Circle of Life comes in. In order to ensure used games were prioritised by staff, targets and quotas were implemented. Targets weren’t a new concept for employees, such goals already existed for up-sell drivers like pre-orders. Issues arose when management reportedly began doubling down on said targets, to make as much money per transaction as they possibly could.
Both current and former employees have taken to different outlets to express their concerns with the system in place. One article from Kotaku, which compiles around twenty stories from employees, shone a light on just how drastic things had become. One former employee, having worked for the company for 12 years and managing for 8, was fired after letting their employees claim their transactions to boost their own targets, to the detriment of their own. What this does is create a pseudo used-car-salesman air around each employee, putting vast amounts of pressure on the individual to keep the company afloat.
With this pressure can often come peculiar business practices. If you’ve shopped in GameStop at all recently, you’re probably familiar with the habit of being hounded to pre-order a game, or to pay for a warranty on your disc. For the most part, this is quite harmless; just politely decline, and move on. But in order to hit some of the up-sale targets, some employees are forced into a corner. For example, if you walked into a store the day a game releases, there are most likely cases of said game in the stock room. But if they had a particularly bad week in meeting preowned quotas, that new game may be ‘out of stock’ mere hours after release. This means that a customer will walk out empty handed, unless there so happens to be a used one in stock, as this way an employee won’t be lambasted for missing out on a profitable sale. With the fear of being released looming, there are a plethora of accounts of such behaviour available online, whether it be moving customer’s money around to make a specified target look better, shilling certain products over another as they’re more profitable, quality aside, or bluntly lying to a customer about a new release or the warranty system to aid their weekly quotas.
Big retail company utilises less-than-shady business practices? Shock and horror. This isn’t a surprising thing for people familiar with sales and retail culture. The difference here is that, most of the time, achieving such sales are incentivised, whether by commission or by general benefits. In many reported cases from GameStop employees, their sales are portrayed as a life-or-death situation. If you must lie and manipulate sales to make numbers better, then that’s what must be done. Those who choose to not conform are met with threats to their job position. What you’re left with is a toxic work environment and depressing staff morale levels, bleeding into shady practices to protect their position, whether they agree with it or not. Despite its effectiveness in theory, the Circle of Life ideology is ultimately a lose-lose. Having staff morale and self-esteem levels so low will inevitably lead to a revolving door policy, where teams are refreshed at a ludicrous rate. In turn, pressing customers with up-sale techniques and unnecessary products leads to a general disgruntlement and annoyance, which could be detrimental to their willingness to return. Couple this with a potential of being caught in the act of carrying out sketchy techniques, suddenly you’re left with miserable employees, discontented customers, and a disparaged reputation.
There absolutely are stores where such practices aren’t present, but with the suspect cases being so well documented, the damage may have already been done. It’s hard to predict where the company will end up in the future. They are the most recognisable retailer in an industry that’s changing year-by-year. Adapting to this is vital in maintaining a sustainable model, but it just may not be enough. With downloads already a viable option, and streaming being a rapidly growing idea, GameStop may end up meeting the same fate as Blockbuster or Xtra-vision have in the years before them.