THURSDAY: GameStop hearing - LIVE at noon ET on ToyDirectory.com
Such is the nature of an investor’s ego: you’re on your surfboard riding the waves one at a time. Simultaneously, you’re observing your rival’s yacht and for a second there, you’re on it with him. The potent and gratifying validation of this vicarious experience generates, by proxy, a sense of grandiosity or, more accurately in this context, functional stupidity.
If you haven’t heard yet, GameStop’s fading brick-and-mortar operation is last summer’s news. The video game retailer became a real-life game as a queue of subreddit WallStreetBets habitués were herded by one of the rabble-rouser users, who goes by the username of Deep#@#@ingValue, into following his footsteps in talking up shares and buying values. A bunch of naive cyber-utopians were given the key ingredients to make a big greasy dish of “The Rich”, but will they digest it?
GameStop’s previously-plummeting sales had its stocks trading for no more than $4 a share. But the past is past, right? Because on the 27th of January, 2021, the boot landed on the other foot, and their stock was trading at $339 a share, which is 129% more than it was just the night before, and a tenfold more than it was 3 days before that.
Allow me to escort you on a trip down memory lane. Last November, Ryan Cohen, the cofounder of pet-food e-commerce firm Chewy, who made a $76 million investment in GameStop last August, sent a blunt letter to GME’s Board of Directors accusing them of “internal intransigence and an unwillingness to rapidly embrace the digital economy.” In his letter, he seemed pretty determined on highlighting GameStop’s failure at adapting with the digital age, and even more determined to shine a bright light at his failure in providing the Board with viable and strategic solutions, which almost drove a wedge between the two. Nonetheless, he proceeded saying, “It is equally important to stress that GameStop has failed to adequately keep pace with key industry developments in recent years, including: The transition from physical hardware to digital streaming. The explosion of mobile. The shift to purchasing from mass retailers and other online competitors.” Well, Mr.Cohen, your 12.9% stake have transitioned from $352 million worth on January 20, to 3.1 billion today, you’ve exploded with epic tears, and this shift from an almost valium picnic to a tulipmania, was no thanks to you.
Although last August, when Cohen first advised GME to close their stores and move online, investors enthusiastically bought some shares with an absorbing, yet unjustified optimistic vision, and thus tripling the shares’ prices by November. Thereupon, hedge funds as the likes of Melvin Capital Management, began short selling GameStop. Shorting a stock is the act of borrowing shares from a broker, selling them, and returning the shares later on. If the price falls, which is every bettor’s best hope, they can buy back the shares and pocket the difference. Downfall is, if the prices rise, the sweet kiss of financial loss might burn. The math here is simple: Melvin Capital bets GameStop’s shares will go down. Melivan Capital was kissed, and burnt. (Oh yes, it closed its position on Tuesday afternoon after suffering heavy losses of nearly 30% and is promised to receive $2.75 billion investment from Citadel and Point72 Asset Management). But it wasn’t the only one. Citron Capital also declared its loss at 100%.
If Redditors rallying GameStop is unacceptable market manipulation, what would you call it when greedy Wall Street bankers gambled away our entire economy in 2008 and faced no consequences?
Now this is the bit where the most comical dog and pony show of schizophrenic stock-buying, thus far (hopefully it’s just another Superstorm that happens every 200 years), occurs. Among the numerous amateur investors riding the bandwagon were real estate salesman in Valparaiso, Ind., a former line cook from the Bronx, an evangelical pastor and his wife in Huntington Beach, Calif., a high school student in the Milwaukee suburbs, Indian amateur investors, and (wait for this one) American Airlines, which shares have soared as much as 60%. Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, said, “It does appear that it (American Airlines) may be getting caught up in this day trading frenzy”. It does indeed appear that it’s mania in the time of hypomania (Thank you Covid-19).
To compensate for the gambling withdrawal effect after sports leagues shut down, amateurs rushed into platforms such as E-Trade and Robinhood which have made free trades a piece of cake, and drove up GameStop’s prices in no time. But it all started on Reddit’s WallStreetBets, the hub of armchair traders and the haven for their outpouring memes. Endowed with a cynical intellectual kink, they never cease to also provide perpetual trade tips and analysis. Amateurs’ overabundant shares and options-buying of GME that made them huge profits, subsequently resulted in a short squeeze, and it was a pretty suffocating one for big hedge funds and investors.
Stock Market bubbles of this size are the kind that make the loudest noise when they burst. There is no way to predict the finale of this GameStop squeeze show, but we know that it’s not just about it anymore. Amateur bettors are now Robinhood-ing other struggling stocks like AMC and Blackberry, and those same bettors that haven’t sold their shares might end up at a dark damp pavement holding an empty bag of nothings.
Sen. Elizabeth Warren of Massachusetts seems to be one to acknowledge the uselessness of the Stock Market and decides to lambast a financial system totally out of touch with economic reality as she calls out Wall Streeters who were criticizing the traders driving up GameStop stock, saying, "For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price." Notwithstanding the many ways through which certain individual trajectories led into a hysterical wave in New York’s buzzing financial heart, there’s an abominable stench of irony that could be smelt from oceans away. The same well-heeled Wall Streeters voicing their complaints about the unfairness of this happenstance are the same ones who were puppeting the stocks up and down to their own convenience, targeting the weak and vulnerable as mere means to an end, and profiting at the expense of those who became poorer as they became richer. I hate to be the one to break it to them, or be one amongst the many who are gloating at this satirical event, but it’s not all lilacs and daffodils.
Lampooning aside, it’s safe to assume that certain WallStreetBets Redditors don’t have the financial literacy to be the David to this Goliath. But let’s illustrate the inner biblical landscape of this economic lesson by saying that speed and agility beat size, precision matters, and living on the cutting-edge of technology is the playfield to disrupt the rules and the status quo. But expect Discord to ban you as it did WallStreetBets on Wednesday in hopes of quelling the hype over GME’s stocks, although allegedly it did not do so “due to financial fraud related to GameStop or other stocks,” but because of “continuing to allow hateful and discriminatory content after repeated warnings.”
Now after BlackBerry’s shares are up nearly 280% this year, stock in AMC surging nearly 840%, and GameStop’s shares going up 1,700% in just 4 weeks, the heightened speculative behavior leaves an upside-down question mark that only time can answer. Whether overzealous Redditors were prompted by the potential of shoveling out big buckets of money or just the sheer pleasure of “eating the rich”, as said by Justin Speak’s wife; the Californian evangelical pastor who’s made $1,700 off GameStop in the past week, this could also be a more nefarious scam or grift on the Redditors led by more experienced options traders, as suggested by Insider's Linette Lopez. From where we’re all standing now, the view is centered around a new (is it new, though?) type of institution: the network, instead of the hierarchy. It is driven by the revolutionary spirit out of which every new movement stems, where thousands of individuals start thinking about change by using and teaching each other a common language, and it’s not long before they turn into millions of roaring crowds. Today, this language is trade. Dumb money or not, laissez les folies roulez!
What is going on with the Market and MANIPULATION | GAMESTOP Short SQUEEZE
This is unacceptable.
We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.
Casino-like swings in stock prices of GameStop reflect wild levels of speculation that don’t help GameStop’s workers or customers and could lead to market instability. Today I told the SEC to explain what exactly it's doing to prevent market manipulation. https://t.co/NWaZe1jFVbpic.twitter.com/MAbjHcq47i
GameStop Short Squeeze and Hedge Funds Shorting GameStop
Hedge funds as the likes of Melvin Capital Management, began short selling GameStop. Shorting a stock is the act of borrowing shares from a broker, selling them at the current market price, and returning the shares later on. If the price falls, which is every bettor’s best hope, they can buy back the shares and pocket the difference. Downfall is, if the prices rise, the sweet kiss of financial loss might burn. The math here is simple: Melvin Capital bets GameStop’s shares will go down. Melivan Capital was kissed, and burnt. (Oh yes, it closed its position on Tuesday afternoon after suffering heavy losses of nearly 30% and is promised to receive $2.75 billion investment from Citadel and Point72 Asset Management). But it wasn’t the only one. Citron Capital also declared its loss at 100%. (Short-sellers of GameStop stock have lost between $4.5 to $5.1 billion in the past 29 days.) 1/29/2021
u can’t sell houses u don’t own u can’t sell cars u don’t own but u *can* sell stock u don’t own!? this is bs – shorting is a scam legal only for vestigial reasons
“I think that GameStop’s used game engine will begin to grind to a halt next year as more and more software developers switch to on-line delivery.”—Rob Enderle, Principal Analyst at the Enderle Group
The U.S. video game market continues to disappoint– at least, if you rely on NPD numbers only and look at the brick-and-mortar channel in isolation. This is how these particular retail sales stack up:
NPD does not measure two key components of the U.S. video game market – used games and digital sales. The former is important in that it represents a highly lucrative segment, one that basically keeps GameStop, the largest video-game only retailer in the United States, in business. The second is even more important, especially in the long run, as it represents the shape of the future.
All indications are that future growth in video games will be driven by online. The national buyers I spoke to agree that all major segments of the video game marketplace will be affected by this to a major degree – from new hardware and accessories to all packaged software, whether new or pre-used. This is how the development is likely to play out:
There is a slight bump in the 2012 and 2013 time frame caused by the likely introduction of the next generation of consoles – the Xbox 720, the PS 4 and the WII U – and this in turn will in the same two years cause an uptick in software sales. However, as the chart above illustrates, the longer-term trend is very clear – down.
The participants in this market place fall into two categories – those that will benefit from the trend and those that will go to the wall. The former are all those software publishers who manage to ride the digital tiger. The latter, the losers, are clearly the manufacturers of consoles – Microsoft, Nintendo and Sony - who have been locked out of the online MMORPG business all along and who will in all probability have equally no role to play in a universe dominated by online or cloud gaming.
After a stellar 2008, the video game market is entering choppy waters. January and February were still decent, according to the numbers, but the advent ofOnLiveand new entrants to the used-game space are likely to shake up sales in the near future.
Growth on the graph below is shown in percent moving annual totals. NPD data tells us that theNintendo Wiicontinues on its upward, trend as doesMicrosoft’s Xbox 360since it began turning around following the price cut. All other consoles are trending down.
Both Amazon and Toys “R” Us are poised to enter the used-game market.
Amazon is offering to buy games at a price that is slightly better, on average, than what one would get from GameStop. However, Amazon will not take every game, and those they do take have to come in the original box with the instructions. According to my sources at GameStop, about 20 percent of the used games they receive lack these components. Individuals submitting games to Amazon must download the shipping label, drop the box into the post, and then wait about 10 days until they have their Amazon credit for the game. I, and most of my friends, think Amazon is unlikely to pose a major threat to GameStop because I do not know any serious gamer who is willing to wait that long.
Toys “R” Us is a different kettle of fish. This third-largest retailer of new video games has, in each of its stores, a space and staff dedicated solely to video games. More importantly, they are absolutely committed to the venture.
As one of my more senior friends at Toys “R” Us explained, “We took a leaf out of Wal-Mart’s strategy. They checkmated us about four years ago when they started to use toys in the fourth quarter as loss leader, knowing full well that we could not retaliate. If we do not make money on toys in the fourth quarter, we do not make money at all. We now use the same strategy towards GameStop. They cannot pay much more for the used games they buy, or go down too much with their used game prices because these margins represent half of their income. We, on the other side, can afford to pay higher prices and charge lower prices because, for us, this is a no-risk venture as long as we break even on the exercise.”
I believe Toys “R” Us is in the used-game business for keeps. I also believe, however, that there will be a cap to their inroads into GameStop’s business, for two reasons. First, GameStop has some 4,000 stores in the United States, and Toys “R” Us has a mere 700. It is more convenient to go to a GameStop than to a Toys “R” Us.
The second reason is that there is a social aspect to the GameStop store. The people behind the counter are much more embedded in the gaming communities in which they operate than their Toys “R” Us equivalents, which will make migration to Toys “R” Us somewhat slow. Also, at least at this point in time, the Toys "R" Us video game attendants are not as savvy or well informed as their GameStop counterparts. As an example, I asked both a GameStop store employee and a Toys “R” Us video game store supervisor as to what they knew about Toys “R” Us’s venture into used games. The GameStop employee knew all about it, while the Toys “R” Us employee had never heard of it.
We all are familiar with the problems GameStop is facing. They are totally invested in brick-and-mortar at a time when consumer begin to buy more and more new games from the publishers directly online. In other words, the action is shifting away from GameStop and is going towards the publishers of games such as Activision and Electronic Arts. Equally importantly, they do not appear to have a strategy to turn this online threat to their advantage and perhaps there is indeed none to be had.
GameStop's major money spinner is used games bought at their retail stores which are on a downwards slope given the fact that less and less new games are bought at retail which reduces the quantity of games that could be resold after use. There is another problem attached to this. A lot of old games are traded in for the newer ones and these old games just sit in inventory and cannot be resold – which leads to an increasing inventory overhang that will eventually force GameStop to take a severe haircut. We are already seeing this in their third quarter 2015 numbers which show that their inventory position increased from the 75.4 days a year earlier to now 84.7 days.
Their second money spinner is new games which, as pointed above, are shifting away from them. This leaves new consoles, their least profitable money maker, and this category is again expected to decline given the rapidly increasing use of smart phones for gaming. And this is how GameStop's business segments developed worldwide to1/31/2016 [last quarter projected]:
Source SEC Filings
In the most recent quarter, GameStop's U.S. sales were down by nearly 2% and operational earnings went down by 11%.
In contrast, this is how the overall U.S. brick-and-mortar market developed over the years:
Update 7-2-09:Barry Judge, chief marketing officer of Best Buy, wrote in his blog June 23 that Best Buy isentering the used-games marketwith self-serve kiosks that scan customers' games and issue gift card vouchers. Some Best Buy stores in Austin and Dallas were testing the concept during the last week of June.
“The margins on used games are double [that of new games], and used games represent about half of GameStop’s gross profit …”
It is rare that a large retail chain totally controls a lucrative product segment, but this is definitely the case with GameStop and its used game business. They have, with a market share of about 90 percent, a near-monopoly.
GameStop is the largest video game retailer in the world and used games make up nearly one quarter of their total sales:
This is how GameStop’s quarterly sales for used products have developed over the past seven years:
When looking at these graphs, remember that GameStop’s fiscal year ends in January. Hence, the first quarter of 2008 is in fact the three months of February to April.
Interestingly, the largest video game retailer in Europe, Game Group, reports that 18 percent of its business is in used games, mainly in the UK.
HOW DOES THIS USED-GAME BUSINESS WORK?
Assume you have a game that you played until you could do it in your sleep. Time to turn it in before boredom kills you. You take it to the nearest GameStop or Electronic Boutique (which is part of the GameStop group) and you tell the kid behind the counter, typically a male, that you would like to sell it. He will look at it and see whether it needs a lot of refurbishing. If necessary, the clerk will pop it into a console and check whether it works. If it does, he goes to the computer and checks with the corporate database to see the current price for this game if in mint condition. You can expect to get about half of the retail price of the used game. If the game or the box is not in immediately resalable condition, he deducts about a quarter from the price because he has to send it to a warehouse from where it is shipped to China for reconditioning. Whatever price you get, you get in the form of store credit.
For many years,GameStopwas the kingpin of the video game market. Not only were their stores the destination of choice for new consoles and games, they also were the place where gamers could buy and sell used games. In fact,GameStophad a virtual monopoly on this business and this showed in their profitability. On Consoles, they made less than 10%, on new games about 20% and on used games around 50%.
They also benefited from the rapid growth the video game market enjoyed in the decade between 1998 and 2008. This growth was fuelled by the introduction of faster and better consoles that allowed gamers to play more and more challenging games. And so people bought more consoles and more games and where did they buy these? AtGameStop, of course.
There was a hiccup between 2001 and 2006 when the consumers knew that new consoles were on the way and held back from buying the old models. As soon as these arrived, the market took off like a rocket.
We are now in the same part of the cycle. The consumers know that snazzy new consoles will come their way – with 3D, motion-sensors built in, sharper graphics and a few more bells and whistles – late 2012 or early 2013. In fact, as the chart below demonstrates, the consumers had begun to know about this as far back as January 2009.
In fact,GameStop’s business began to flatten out even earlier, in 2008.The reason for this is that a significant proportion of its consumers are very savvy hardcore gamers who, of course, would know well before anybody else that there were new consoles on the horizon. Management, well aware of these trends, sought to protect their flank by buyingMicromania, France’s largest video game retailer, so as to ensure continued growth inspite of underlying trends:
Looking at stagnating sales should be bad enough but there are some more bad news forGameStop. And, as they say, bad news rarely come in singles. The first piece of really bad news was the ascent of theiPhoneas a gaming platform. This is how theiPhonemarket share in the gaming space developed versus the two other handhelds – theDSand thePSP:
Gamestop has turned in another disappointing quarter and it behooves us to ask whether this is a short-term glitch or whether it is a signpost for things to come.
Firstly, let us look at what GameStop’s business really is:
Source: Gamestop SEC filing
If you strip out all the hyperbole about growth and market shares, the facts are that Software, new and used, represented in the third quarter of 2014 more than 75% of the company’s sales and gross profit. Also, in an industry that moves more and more strongly into digital selling, GameStop’s brick-and-mortar sales still represent 95% of the total.
Gamestop is the 800 lb gorilla in the video game space and is totally dependent on this space prospering. Their main market is the United States and we must hence take into account what happens there today. According to NPD, the gold standard in video game market research, the U.S. brick-and-mortar market has developed as shown in the graph below:
The New Software segment of the U.S. brick-and-mortar video game market has been declining every quarter since the end of 2008 but it still is Gamestop largest business and its second-largest gross profit generator (used games are their most profitable segment).
All indications are that brick-and-mortar sales of video game products are going the way of the Neanderthals and that digital is taking over. This is the picture as reported by the leading video game publishers and compared to Gamestop’s:
Source: SEC Filings. Note that 2014/9 is annualized – 4th Q 2013 to 3rd Q 2014
The two leading U.S. publishers, Activision and Electronic Arts, are reporting digital sales either well above or only slightly below 50%. Gamestop, on the other hand, is still stuck below the 10% figure.
Video game retail sales in the U.S. have been in the doldrums ever since they hit a high point back in 2009. However, this was then easily explained. Everybody was waiting for the new consoles to come out in 2012 and 2013 and did hence hold back on buying games for the older console versions. Things would turn sharply north once the eighth generation machines were becoming available.
The first of them, the WII U, hit the market place in November 2012. While the machine initially flew off the shelves, software sales did not budge. In fact, they continued to drop. Again, this did not worry people because, after all, the real heavyweights – the Xbox One and the PS4 – were going to launch in November 2013 and this would trigger the long-awaited turnaround for video games. The two releases came and both consoles have since then broken all records. But software continued to slide consistently and the last reported month, June 2014, was no exception. This is how things developed:
The gurus who had been predicting a video game resurgence had, however, been right except it just did not happen in quite the way they had imagined. What occurred was that the same people who had bought the new consoles from the retailers also decided to go elsewhere for their video games – they went directly to the publishers from whom they could download the games.
This trend had in fact started much earlier. The publishers – Activision and Electronic Arts in particular – had over the past seven or eight years made a consistent effort to shift consumer purchases away from retail to downloads, motivated by three factors. One was that they could pocket the retailer margin of about 20%. The second was that downloaded games are much more difficult to pirate – and pirating worldwide accounts for about 20% of all games sold at retail. The third was that downloaded games cannot, unlike boxed games, be resold as used games – and the publishers are completely excluded from the highly lucrative used game market dominated by GameStop.
This is what in reality happened to video game sales in the U.S. according to the Klosters Retailer Panel and the national buyers:
In other words, the total U.S. video game market started to decline in 2010 and began to turn around again in 2012 – when the WII U launched. The rapid rise in downloads more than compensated for the decline in retail sales. This trend is expected to continue, not only in the United States but worldwide, and downloads are anticipated to represent more than three-quarters of all video game sales by 2020.
This should not have come as a surprise to anybody who followed the two leading publishers – Electronic Arts and Activision. This is how their shipments went – boxed games sold at retail versus downloads:
A few weeks ago, GameStop unveiled their 2012 results. The analysts attending the meeting were impressed by the very effective and highly polished presentation and the optimism and energy with which management painted the future of the company. GameStop shares have been on a tear ever since – up more than 23% in less than four weeks.
I have said for months that GameStop’s situation is fraught, and recent developments tend to strengthen this conviction.
Firstly, GameStop is a retailer pigeonholed into an industry category that is in transition, and this transition is away from retail. This is how the U.S. market, GameStop’s largest by far, has developed:
In comparison, GameStop has done much better, but it has not escaped the velocity of the market place:
They outperformed the market itself by increasing market share – 38.2% at the end of 2011 to 47.1% in 2012. However, there is a point where market share increases become incrementally very expensive, and my friends at GameStop think that this point has pretty much been reached.
There are a couple of forces that impact the video game market and spell potential disaster for GameStop.
One is the move to digital downloads from consumers, which now represents 40% of all games sold. In contrast, GameStop’s digital sales only represented about 6% of their total video game sales in 2012. And this is not a one-day wonder. Electronic Arts’ COO predicted a few weeks ago that digitally delivered video games may account for 50 percent of sales by 2015 as more players migrate to tablets and smart phones from consoles. Unless GameStop manages to grab a much larger part of the digital market their sales will likely decline in line with the video game retail market.
Secondly, parallel to the erosion of the boxed game business sold at retail you are seeing an erosion of the secondary market place, a trend that has been ongoing at GameStop since the fourth quarter of 2011. The less new games are bought at retail, the less used games will be available for trade-ins. Used games are GameStop’s cash cow with margins that are twice those for new games and, any negative sales developments will have a very major impact on GameStop’s bottom line.
At their most recent SEC filing, GameStop reported sharply declining sales. This gave many a reason to say that GameStop had finally hit a brick wall because of declining retail store traffic, increasing competition from iPads and iPhones, and skyrocketing online sales from the publishers directly to the consumers.
While all these factors are real, they do not necessarily spell the demise of GameStop today or tomorrow.
Firstly, a look at the market place in the United States. The most important trend is that of skyrocketing online sales. There is no question that these are clearly the trend of the future.
Six months ago,in this publication, I projected the overall video game sales curve forward to 2020 for both online sales and brick-and-mortar retail sales:
and added that
“The next decade promises to be interesting. In all probability, broadband improvements will lead to real and fundamental change in the way in which video game products are sold. The winners are likely to be the publishers of software and the providers of Internet based services such as OnLive, Gaikai and others. The losers are likely to be the brick-and-mortar retailers unless they manage to move their business online.”
The latest NPD numbers confirm that this trend is well under way as far as brick-and-mortar sales of new video game products (except downloads and used games) are concerned:
Does this mean that GameStop can be counted out?. No, I do not think so.
It is obvious, in retrospect, that they recognized nearly three years ago that the choice facing them was to either ride the digital tiger or be eaten by it. And not so surprisingly, they chose the former rather than the latter. They hence began to to embark upon a focused, logical, and well thought-out strategy to cope with the online challenge facing them. This is how the sequence of events unfolded:
Date of Event
GameStop forms Digital Media Group
Focal point for all GameStopefforts and strategies relativethe digital market place
GameStop appoints Chris Petrovic GameStop Digital Ventures
former VP of digital at Playboy
GameStop appoints Shawn Freeman, VP and GM of Digital Business
Digital Business Former President, Tickets now and SVP Resale, Ticketmaster at Ticketmaster Entertainment
GameStop acquires Jolt Online
UK online gaming provider, competes against OnLive.com
GameStop acquires Kongregate
Casual gaming social network, competes against Miniclip.com
GameStop unveils PowerUp Rewards
Digital Loyalty Program
GameStop acquires Impulse
Digital distribution platform, competes against Steampowered.com
GameStop acquires Spawn
Provider of streaming and virtualization technology, competes against OnLive.com
GameStop begins offering online PC games at its retail locations
Permits trade-ins of boxed products for credit on digitals
In summary, GameStop first decided to create an instrument with which to execute the company’s digital strategy, staffed it with good and experienced people, and then made the acquisitions and implemented other initiatives to give muscle to the effort.
However, the implementation still has ways to go if online activity is any guide (and given that we are discussing an online commercial strategy, online performance is probably the best of all yardsticks).
There is no question that GameStop has had a tough time of late. There are any number of reasons given – we are at the tail end of the last console cycle, there is a shift from consoles towards mobile phones and tablets, downloads are taking more and more share away from the brick—and—mortar retailers — but whatever the case may be, GameStop is struggling and the third quarter 2012 results just now published show no let-off in this pattern:
Also, the company's web traffic shows a similar picture and this in spite of their avowed determination to channel more business via their website:
Yet, not all is lost, at least for the fourth quarter. GameStop will have a couple of humongous releases – one is the Wii U, the second Halo 4 and the third CoD Black Ops 2. There has also been the release of Assassins Creed 3 on October 30th, which should contribute nicely during this quarter as well. All three titles promise to do extremely well and to significantly exceed the sales of their predecessors, which should provide a lift to GameStop's numbers.
In addition, GameStop also benefits from the absolutely outstanding success of the Skylanders, particularly after the release of the Giants on October 21. I would expect this to result in yet another quarter where the Accessories sales exceed last year's numbers.
However, the most important of releases this year is that of the Wii U, the first entrant in the new console cycle. Wii U will become available on Sunday, November 18, and is expected to sell 3.5 million units until end of the year – up from the 3.1 million units the Wii sold in 2006 when first released. GameStop is likely to move 450,000 units in the same time period, or about $150 million in sales. As a result, the company should for the first time in a long while show an up-tick in new hardware sale numbers.
This will not change the fact that GameStop's total sales in the fourth quarter will most likely fall short in comparison to last year.
Yet, they also see hope in the fact that the other two hardware manufacturers – Microsoft and Sony – will release their next—generation consoles late in 2013.
The problem GameStop has, which has not changed over the past few years, is that they face two monumental shifts in consumer behavior. One is that games are increasingly accessed online, bypassing brick-and-mortar retailers altogether and thus fundamentally affecting boxed software sales. The other is the move away from traditional consoles sold by the likes of GameStop to tablets and mobile phones, which allow gaming digitally.
Software publishers, such as Electronic Arts and Activision, actively encourage both trends for several reasons. One is that games sold digitally directly to the consumers save them the 20% retailer margin they would normally have to pay the GameStops of this world. The second is that it is much more difficult to pirate digitally transmitted software. In fact, 20% of all boxed video games in circulation in the U.S. are pirated, which is a lot of business to lose. The third is that digital games cannot be resold as used games, which compete with new games and now represent about 15% of all the games sold in the United States.
The move to digital games is real and accelerating: