GameStop shares have slid more than 12% in afternoon trading Friday after the video game retailer reported a drop in fourth-quarter sales and announced plans to close at least 150 of its 7,500 stores worldwide.
GameStop faces increased competition from retailers such as Amazon, Best Buy and Walmart while more players purchase games digitally — whether on traditional gaming consoles or on their smartphones or tablets.
The video game and consumer electronics retailer’s woes are the latest example of a brick-and-mortar retailer impacted by consumers’ rush to purchase products online. J.C. Penney and Sears Holding have announced plans to shutter several locations.
GameStop chief financial officer Rob Lloyd says the closures are part of a multi-year strategy launched in 2011 to help serve its customers more efficiently. In some cases, it might mean combining two nearby, profitable stores into one store capable of making a stronger profit. “As we continue the transformation of GameStop, part of our diversification strategy is to rationalize our global store footprint to ensure we have the right mix of stores and merchandise that meets our customers’ needs,” says Lloyd.
GameStop’s struggles were illustrated by a 13.6% drop in global sales, to $3.05 billion, from a year ago. GameStop blamed weak sales of certain blockbuster video games released during the critical holiday season and “aggressive console promotions” by other retailers.
New hardware sales plunged 29%, while new software sales dropped nearly 20%.
“We encountered stiff headwinds as we completed the third year of the console cycle,” GameStop CEO Paul Raines said.
Larry Perkins, CEO and founder of SierraConstellation Partners, said the gaming market follows the path of other specialty retailers in moving toward more diversified offerings.
“Not only are they getting hammered by the online retailers and big box that have an inherent cost advantage through no retail real estate footprint or a much larger footprint that they can leverage with other products, but the movement to mobile-based games is creeping up mightily,” Perkins said.
While growth in video games shrinks, GameStop said its Technology Brands business, which includes cellphone retailers such as Spring Mobile, posted a 44% increase in sales during the fourth quarter. GameStop’s Collectibles business, which features the apparel retailer ThinkGeek, rose 28% because of strong interest in Pokemon toys and gear.
This year, GameStop plans to open 65 Technology Brand stores and 35 Collectibles stores and will close 2% to 3% of its GameStop stores, which amounts to at least 150 stores.
A potential bright spot for GameStop’s gaming business is the launch of the Nintendo Switch this month. Mizuho analyst San Q. Phan said GameStop has indicated “its multiple replenishments since launch have sold out in hours.”
Microsoft will introduce a console dubbed Project Scorpio, an upgraded Xbox One which will support native 4K gaming and virtual reality.