The Mistakes That Led GameStop to Its Downfall
By: Michael Beausoleil
Tags: Marketing, Gaming, Economy, Business, Customer Experience

Video games mean big money. It’s a multi-billion dollar industry that’s projected to continue growing in future years. So it should be no surprise to see companies trying to capitalize on the market. Console wars generate media coverage, new titles frequently wear a $60 price tag, and customers are always given reasons to spend more. This industry has allowed the store GameStop to thrive, but changes in the gaming industry are putting a strain on physical sales. This is going to impact brick and mortar stores, but GameStop is not a victim. They created their own problems, and they continue to sink themselves further.

To understand the rise of GameStop, it’s important to understand their unique relationship with the consumer market and the economy. At the end of 2019, the company has 3,642 US locations. This number is really close to the number of US locations reported at the end of 2005: 3,624. Looking at these two data points would demonstrate a level of stability, but there was a period of growth and then a decline. At the end of 2011, the company reported 4,503 GameStop stores in the US.

via ccpixs

For a period of time during the end of the 2000’s and entering the 2010’s it seemed like GameStops were popping up all over the place. Every strip mall seemed to get one while some shopping malls had multiple GameStops. Perhaps this had to do with the acquisition of EB Games in 2005, but purchasing a competitor should be a strong sign of success.

This period of time was also the perfect storm for the gaming market. The lates 2000’s saw the video game industry booming during the Great Recession. While gaming isn’t cheap, the amount of entertainment received for the cost will outweigh other forms of entertainment. The Recession also made real estate cheaper, so GameStop could open more stores where other stores went out of business. Further, we were in a technological sweet spot. The Xbox 360 and Playstation 3 offered great graphics, but these graphics meant physical media (Blu-Rays or HD DVDs) were necessary to hold games. While the movie and music industry was being hurt by bootlegging, gaming didn’t feel the same impact.

So GameStop started thriving, but they made mistakes. Now they’re failing and can place a lot of the blame on themselves.

Mistake #1: They Grew Unsustainably

Gamestop really saw their biggest jump in stores between 2004 and 2005, but that’s because they purchased EB Games. This doubled the number of store under Gamestop control, but opportunity arose shortly after the acquisition.

A new generation of game consoles cycled into existence in 2005/2006, the Recession made real estate affordable, and GameStop could expand further. That doesn’t mean they should grow, especially because they were already going through a transition. Eliminating EB Games meant GameStop didn’t have a major competitor specializing in gaming. They would need to compete against electronic stores like Best Buy or department stores like Target and Walmart.

The same recession that would make real estate more available to GameStop would also drive customers into department stores. They were simply growing because the space was available, not because there was an opportunity to overtake more competition. Now GameStop would need to focus on its used game market to differentiate itself from these cost-friendly department stores. This would translate into behaviors that produce an unsatisfactory customer experience.

Demand for video games didn’t mean demand for GameStop. The store had to offer something unique, and the quantity of stores did not translate to quality.

Mistake #2: They Thought The Were Invincible

Looking at the technology of the time, it was clear gaming companies were going to try to shift away from physical media. CDs were becoming obsolete, desk top computers could store games, and video game consoles were becoming more capable.

One reason GameStop could open two stores in the same town was their focus on used games. This meant customers could go to the eastside GameStop and find a different used selection of games than on the westside of town. Trading in games also meant a high inventory of used merchandise, and it takes room to store that. Going digital meant less physical content. You can’t trade in a digital copy of Halo, and that makes the GameStop model fairly pointless. Why pay $60 for Halo at GameStop when you can buy it digitally for $60 and stay home?

The Xbox 360 and PlayStation 3 really weren’t capable of storing a library of games. Internet speeds weren’t as great in 2006, and computer storage was more expensive, but the groundwork for a console without physical media was being established.

Photo by Nikita Kostrykin on Unsplash

Meanwhile, GameStop is building a market around physical media. To be fair, people did want to be able to resell games and this was made clear when the Xbox One was announced. The gaming industry was still moving to the point where digital games were becoming standard. For example, the original Wii had the “Virtual Console” which allowed gamers to purchase a library of games digitally. They were all older titles from prior systems, but this concept is designed to chip away at the used game market. Comfort with digital games would eventually chip away at physical stores.

Mistake #3: The Customer Experience Got Worse

Every store has its initiatives. They’re supposed to benefit the customer, but really, they exist to benefit the company. Brand loyalty can be mutually beneficial, but the GameStop experience has also been flooded with an inconstant flow of brand initiatives.

When any customer makes a purchase, they’re pressured into the PowerUp Rewards program. Admittedly, this can be beneficial to the right customer, but for casual gamers or parents, it’s a barrier to making a purchase. Then customers are asked if they have anything to trade in for store credit, if they’ve considered purchasing used, want to pre-order a game, or if they would like game insurance.

Now, customers are asked about trading in more than just games. They’re trying to get customers to trade in technology (most specifically smartphones). In return customers will get store credit.

Trading in video games and consoles? That make sense, but no one is buying smartphones at a GameStop. If customers don’t see their trade ins on the shelves, it sensible to assume the company will reap the majority of the profit.

GameStop has tried other initiatives like handing out fliers to customers in the store. It’s fairly invasive, but also easy enough to ignore. When paying customers feel pressure beyond their intended purchase, their opinions of the company will decrease.

Mistake #4: They Put Profit Over Employees

The pressures placed on customers aren’t just employees trying to make more money. The company has been burdening employees with unrealistic expectations. It seems like every time I hear something about GameStop, the message is followed by employee frustrations.

via GameStop

When the employee is overwhelmed, the customer feels it too. GameStop expects employees to hit certain metrics, and they get penalized if they don’t met expectations. There are reports of employees losing shifts and even getting fired because they didn’t hit corporate goals. Ultimately, these goals make it harder for customers to buy games.

The disregard for employee wellbeing came to a head thanks to COVID-19. Initially, stores stayed open and GameStop allegedly stated their employees were essential. Even when states ordered stores to close, GameStop tried to remain open. They even told employees to wrap plastic bags over their hands as a precautionary measure, showing a lack of regard for employee safety.

By most accounts, COVID-19 is not an anomaly. It focused a spotlight on a preexisting structure where corporate wanted to prioritize profits.

Will GameStop Survive?

In hindsight, some of the mistakes made by GameStop are understandable. When other industries struggled during a recession, gaming grew. When other media was going digital, games stayed on discs. GameStop has some reasons to believe they were different.

It was really only a matter of time before the video game industry realized it wasn’t the exception. Growth can’t last forever, and eventually technology would make gaming more convenient than going to a physical store.

The red ring of death. A notorious sign for a dead Xbox 360

The truth is, GameStop is declining. It seems like they’re trying to slow the bleeding, but the end is coming. It’s not because the video game industry is going away, it’s because people don’t want to deal with a store like GameStop. It’s not a pleasant experience because of the business model. Stores will continue to close, and soon malls with be filled with vacant GameStops just like they had vacant RadioShacks last decade.

2020 could have shown some temporary relief for GameStop. New consoles are slated to be released, and that could drive more traffic into the stores. COVID-19 may hurt this process. There could be delays, restrictions on customer traffic, and consumers taking their shopping online. This time, GameStop is not immune. They will feel the brunt of current changes and it will lead to their downfall. It’s only a matter of time, but soon enough, the plug will be pulled on GameStop.