Recent events have given GameStop something of a halo. The release of the PlayStation 5 and the Xbox Series X/S were definitely a shot in the arm, particularly given their scarcity right at the moment. And boardroom drama with former Chewy CEO Ryan Cohen taking three seats on the company's board seems to have spurred an insurgency of sorts against short sellers who have systematically driven the stock price down over the last few years. Nevertheless, these are not events which ensure the company's future. At best, it's a temporary respite, a bit of breathing room while the company tries to get their act together.
Having worked inside a GameStop, I'm here to tell you a lot of things are going to be required to help the company dig itself out of the hole it finds itself in.
1. Technology Is Great (When It Works)
Ryan Cohen sent GameStop's board a letter in November of last year insisting that the company pivot to "a technology-driven vision." In the main, I can't necessarily disagree with this notion. For a company who deals with some of the most cutting edge consumer electronics around, GameStop's own technology deployments are deplorable. Their backend software is slow, unwieldy, and poorly implemented. Their online storefront is a shambles compared to dedicated digital stores like Steam and GOG.com, and has been for ages. One would hope that Cohen's ascent to the board will lead to some aggressive retooling on those fronts.
However, technology is not a panacea for every ill, nor does it ameliorate basic human needs and desires. Online retail only works as well as the backend supporting it and the Internet connectivity to actually reach it (more on this in a bit). If one or the other of those elements is impacted, diminished, or absent, no business plan in the world will save you.
2. The Logistics Need An Overhaul
To turn an old military aphorism, "Daytraders talk business plans, real businessmen talk logistics." And if there is a more bitched up, shambolic, and hopelessly inefficient kludge of a supply chain than what is currently used by GameStop for their internal logistics, I've yet to see it. On paper, it almost seems reasonable. Two major warehouses, each one basically servicing one half of the country, serving as depots for lots of used gear (some of which needs to be refurbished) and old games. Online orders for "vintage" items are fulfilled through here, not through local stores.
However, those "vintage" items currently come in through those local stores. They are then packaged up (badly), shipped off (infrequently), and cataloged (incomprehensibly). And the process for moving stock from one store to another was equally ridiculous. It's understandable if one store doesn't seem to be moving product that another store is finding itself chronically short on should have a process of getting stock from point A to point B. But when employees are basically having to hop in their own cars to drive it over rather than go through the hassle of the "official" shipping process, it's a damning indictment against your logistics. For stores in the same city, it's certainly more expedient than UPS or FedEx, but still not confidence inspiring.
3. The Internet Is Not The End-All Be-All Solution
I know this is going to shock and dismay some of you, but not everybody in the world has Internet access. And, adding to your discomfiture, not everybody has a similar degree of Internet access. As William Gibson so pithily observed, "The future is here, it's just not evenly distributed." And while owning game consoles assumes a certain degree of affluence, affluence is not always tied to local infrastructure.
For those of you who may have forgotten, back in 2013, Xbox head Don Mattrick was questioned about the potential problems of the recently announced Xbox One requiring a "phone home" ping through the Internet to ensure its continued functionality. It was pointed out that US troops and sailors deployed overseas or on long tours on naval vessels didn't have reliable access to the Internet the same way civilians did, and that a large percentage of the American populace did not have access to broadband. Mattrick's tone-deaf response was, "Fortunately we have a product for people who aren't able to get some form of connectivity, it's called Xbox 360." Combine that with then-EVP Adam Orth's dismissive "deal with it" tweet, and you can see why Xbox One struggled so badly against the PS4. It wasn't a question of capabilities (even after the system was redesigned to remove the phone-home ping), but a question of attitude, an almost willful ignorance of conditions outside the tech-rich bubbles which far too many tech companies and Internet startups operate in.
It's 2021 now, but ISPs have not been investing in new infrastructure, they're gouging the hell out of their customers with data caps (and then claiming they're a good thing because the ISPs made money off it), and there's still a significant percentage of the US which doesn't have broadband access, let alone Internet access. This is the reality on the ground, and going to a purely online presence without recognizing that reality is not going to help GameStop turn their fortunes around.
4. Store Control Is Completely Out Of Whack
Retail is hell, as much for the employees as it is for the consumer. Constantly having to change around marketing materials when new games come out, slapping new labels on game boxes, the occasional armed robbery, nobody goes into retail expecting to make a career of it. If there's one aggravation that reigns supreme, though, it's the lack of control over the store. Having a consistent "look" across stores in a chain is understandable. But strangling initiative when people come up with ideas to help potentially drive traffic to the store is completely baffling.
Before the pandemic, the assistant manager at the store I worked at had ideas left and right, trying to make the store not just a place to buy games, but the place to go for games. One example: since the store sold Pokémon trading cards along with the video games, doing promotional events like one-off open tournaments when a new Pokémon game came out seemed like a natural fit. Nobody would be ranking up or anything in league play. It would have been just a fun evening right before the release. Did these sort of events happen? Nope. If it wasn't the store manager putting the kibosh on the idea, it was somebody higher up. Events happened because somebody from corporate HQ decreed an event would happen. Without the ability to make a store unique, even if it's conforming to the standard look, closing those stores which are deemed "underperforming" isn't magically going to translate to better foot traffic. Initiative and creativity need to be encouraged at the local level, not parroted at the corporate level.
5. Staffing Is Punitive
There's no other way to describe GameStop's system of employee utilization besides a table of punishments for sins either by management or by the market. Stores are allocated a "budget" of hours based on how well the store's sales were the previous week. If you have a good week, you get more hours. If you have a bad week, you have fewer hours. To a certain species of bean counter, this makes sense. Out in the real world, though, it's literally a feedback loop of failure. It creates a self-fulfilling prophecy of a failing store. If you cut hours back to the point where you've only got the store manager running the place without respite, you're going to burn out the store manager and force the store to close.
This, of course, assumes that you have a store manager who isn't already seemingly using the schedule to curry favor with favorites and maybe punish employees they don't want to deal with by not putting them on the schedule. Barring particularly egregious violations of policy like theft, nobody ever gets fired from GameStop, you're just not on the schedule, an employee without hours (and thus who never gets paid). The store has a posted schedule of hours, the store needs to be open those hours, the store needs staff on those hours. Trying to tie hours to performance is asking for trouble. If you're really needing more people when things get crazy, hire more people or hit up a temp agency.
6. Actions In Extremis Are Not Good General Policy
The ability to buy damned near anything online and have it shipped to our doors has been a big help in surviving the more inconvenient aspects of the COVID-19 pandemic, but once that pandemic is over, it's entirely likely we'll be seeing a drop in online shopping. People will want to go out again, to smell the sunshine and mingle like they used to do, without masks, without social distancing, and without a web browser asking how many items they want to put in a cart. GameStop is not going to be any different in that regard. Never mind that the staff was already wiping down anything that came into the store as a trade item with disinfectant wipes (or they were certainly supposed to be).
However, trying to normalize what were extreme measures by saying, "Welp, we've been doing it this way for a year or so now, may as well pull the trigger and just close all the stores," is a recipe for disaster. It is a recipe for disaster precisely because there are already fully digital vendors out there (Amazon, Steam, PSN) as well as mixed vendors (Best Buy and Walmart). Either way, GameStop is not going to be some magical unicorn which corners the market because it is GameStop. It's going to be an uphill battle trying to capture market share from those competitors, or hold what they have, and anybody who says otherwise is lying.
7. Physical Media Isn't Dead
One of the saving graces that helped GameStop through this last quarter has been the release of the PS5 and Xbox Series X/S. However, it should be pointed out that both of those consoles, while they had versions which were "digital only," are not exclusively digital only. Part of that goes back to the sticking point about Internet availability and deployment. Part of it is a recognition by Sony and Microsoft, perhaps grudging but recognition all the same, that there is a market segment which prefers physical media. No doubt Ryan Cohen might be led to believe that the future is digital only. He could certainly look at the number of games sold on PSN, Steam, GOG.com, the Nintendo eStore, and the Xbox/Windows Store over the course of 2020 and come to the conclusion that digital stores are the only way to go.
He would, of course, be completely wrong. Despite Citron Research's Andrew Left desperately proclaiming, "numbers don't lie," numbers can in fact be used to lie. They are often lies of omission, but lies all the same. Ambrose Bierce's observation that the three kinds of falsehoods are "lies, damned lies, and statistics" could almost be tailor made for this situation. Yes, digital stores experienced a tremendous surge of use in 2020 because the physical option was deliberately restricted. Without acknowledging the unusual market conditions which existed at the time, you're lying to yourself and to your investors. Yes, physical media sales have been declining, but I would argue that "declining" is not the same as "dead." And I would further argue that just because there is a decline now is not any reason to believe that it cannot swing the other way later. More importantly, the market conditions which currently exist to make digital seem attractive now are not guaranteed to remain in perpetuity.
8. Digital Stores Are Not Communities
Arguably, the "vision" that GameStop's existing upper management had was patently absurd. You know, the one which posited stores turning into "digital lounges," with some people anticipating Redbox-style kiosks where customers could directly download games to their consoles. Those folks were clearly smoking something which can't be good for your health. The logistics involved would be ludicrous.
That being said, there is a shortcoming to a digital storefront: there's no real sense of community to them. You have a pool of customers, almost demi-subscribers, who are making transactions on your particular website or app which is functionally no different than making it on any other site or app. There are fan communities for specific games, or developers, or publishers. But stores themselves? Unless they've got some kind of exclusive benefit (like GOG.com's "no DRM" policy) or consistently better deals than the competition, there's damn all to justify using one over another with any degree of consistency. People don't have any passionate attachment to digital stores as a general rule. They may like the convenience, but that's making a daily bet on your customers' laziness. And while you may not lose money betting on people's laziness, you can lose money on people being fickle.
9. Games Need A Human Touch
There's a big to-do about how Ryan Cohen made his pile with Chewy.com, and as startups go, it certainly did better than Pets.com managed. However, there is a fundamental difference between pet supplies and video games. If you're buying dog food, you're not sampling the food yourself to see if your dog will enjoy it (Lord, I hope you're not). But ultimately, it's a trial-and-error sort of affair. Pets are not particularly discriminating when it comes to the fine details of their lives. Edible food, clean water, comfy place to sleep, all the rest is on the pet owner to provide. As long as those basics are handled, all is good.
Video games, on the other hand, are a complex chimera; they sit at the intersection of art and science, cutting edge electronics mixed with state-of-the-art tools used to create experiences which evoke responses both refined and primal from those who play them. For all the bullshit that ultimately made me quit my job at GameStop, the moments I loved about that job were talking with customers and genuinely helping them. From the little old ladies who weren't real sure what this Fortnite thing was to players who were working to get out of their particular comfort zone and try something new, I was a guide who could help them make sense of it all. I didn't try to push the latest iteration of Madden or Call of Duty (those players were already consistent) unless I legitimately believed it was something the customer would enjoy. The players who'd had to put the games away for a while and were getting back into it but hadn't kept up on the latest news were always tremendously satisfying to help out. Even the customers who were already gamers and were wanting to talk games were a bright spot in otherwise grim days. As Nick Hornby wrote in High Fidelity, "I'd feel guilty taking their money, if I wasn't...well...kinda one of them." And those are the kind of employees GameStop needs to be successful. It's a degree of customer service you simply cannot get through a chatbot or some random CSR sitting in a cube farm in Mumbai.
10. It's About The Games (Or Oughta Be)
I don't know anything about Ryan Cohen's game preferences. I don't know how many Platinum trophies he's got on PSN or what his Gamerscore on Xbox Live is. For all I know, the man doesn't even play solitaire. But he is correct that GameStop has pissed away a great deal of market share by doing what they've been doing this whole time without trying to make some kind of serious effort at changing with the times. This doesn't mean that he's inherently correct about what needs to come next. Trying to out-Amazon Amazon is likely to be a road to oblivion. Hell, trying to out-Steam Steam isn't exactly a viable plan, either. Even GOG.com didn't go straight at Steam right off the bat, but worked around its flanks and built up strength before taking on brand new games.
GameStop, as it stands right now, is at a critical point. I'd like to see it transform itself into something interesting. Having seen what happens in a GameStop a lot more closely than Ryan Cohen probably ever has, I can tell you that one does not have to make a false choice between brick-and-mortar or online-only. The two major heavyweights in the video games industry have already realized that you do not make money by arbitrarily deciding what your customers want. You present them with options, multiple paths towards the same result: a happy customer. You focus your efforts on the games. If that means you make GameStop only about the new hotness, go right ahead. If you figure out a way to make the used games viable without unconscionably screwing over your customers, also good.The shirts, the drinkware, the Funko POPs, maybe tone that down, maybe move it over into a subsidiary that handles "gamer culture" (Hey, you could resurrect Thinkgeek, run that place right). But the primary focus needs to be on the games first, with the paraphernalia for games (consoles, controllers, other peripherals, replacement cables, etc.) being a very close second. It should be making sure gamers have the games they are looking for and can be happy with their purchases.
Because if the only thing you're interested in is pumping up the stock just to make another billion before taking your leave, then maybe just leave now. The investors behind the short squeeze which happened recently may have been spiteful in their actions, but their motivations seem to be more about saving GameStop from being short sold into the abyss of failed brands than simply making a quick buck. It represents a line in the sand, a feeling that the world needs something like GameStop, and that this particular company will not be going the way of Sears, Blockbuster Video, or Tower Records. Make it about the games, make GameStop the first best store to find the games, and you might just be surprised at the results.