Online gaming has become quite a beast in the entertainment world; so much, in fact, that it is actually taking its toll on video game retailers. For example, the once popular GameStop has just announced plans to close several dozen stores after total global sales growth fell a terrifying 13.6 percent (to $3.05 billion) for the fourth quarter (ending January 28, 2017).
Not only, for example, are players buying fewer and fewer physical games, but they are not buying pre-owned games as much either. Though pre-owned games are still outperforming new video games, pre-owned game sales have fallen 6.7 percent compared to this same period from a year ago. At the same time, though, fourth-quarter collectibles sales increased a massive 27.8 percent to $212.4 million, particularly driven by very strong sales of Pokémon-related toys and apparel.
On the other hand, GameStop CEO Paul Raines downplays the pressure of digital downloads, at least in regards to the company’s retail struggles. Instead, he argues that the troubles stem from deep discounts posed by rivals during the holiday season, a time when specialty retailers often see a lot of business.
He says, “Our conclusions are that overall gaming declined slightly in 2016 as mobile growth slowed in console digital was flat. So, I think it’s critical for our analysts and investors to understand that 2016’s physical game decline were not caused solely by acceleration of full game downloads.”
To be certain they can stay afloat until it is certain in which direction they should head, the company has added 17 Collectibles stores during the most recent quarter. This brings the total global Collectibles portfolio to 86 stores (that includes 24 ThinkGeek stores in the US). And they are also planning to close 50 of the company’s largest US stores and another 100 store around the world will be converted into hybrid stores (to carry collectibles).
Though GameStop shares fell more than 10 percent after Thursday’s announcement, Moody’s Investors Service supports this approach. Moody’s lead retail analyst Charlie O’Shea comments, “We continue with our view that the strategy behind GameStop’s transformation is sound, with its Q4 2016 and FYE results in line with our overall expectations, especially when viewed through the lens of gross margin expansion. Given the periodic challenges inherent in the gaming sector due to its reliance on new hardware, GameStop’s heightened focus on its Technology and Collectibles segments, both of which drive higher margins and benefit from steadier and less fickle demand, makes good long-term sense.”