It’s not exactly shocking news that GameStop seems to be at risk of facing game over.
After disappointing first-quarter earnings (comparable store sales fell 10.3%) and the announcement it was suspending its dividend earlier this month, the company’s stock plunged 37% in a single day. Shares are down roughly 60% year to date, amid continuing bad news and growing competition. And some analysts are warning investors to stay away, with Mike Hickey of The Benchmark Company, saying he was reducing his price target to $5 “as [the] business burns to the ground.”
That makes Frank Hamlin’s job a tough one. As EVP and chief customer officer, it’s part of his job to convince both players and investors the company is still relevant—and not following the well trodden path of Sears, J.C. Penney, and so many other casualties of the retail downturn. And so far, he hasn’t had a lot of ammunition, as GameStop’s new management team prepares its turnaround plan.
Speaking with Fortune at the E3 video game trade show last week, Hamlin offered a few hints of what the company wants to be—and do—moving forward.
“We had a massive diversification strategy [previously], but the new management team, under George Sherman, our new CEO, is myopically and maniacally focused on gaming,” he says. “We need to…focus on becoming a cultural center for gaming….If [E3] is the Vatican [of gaming], why aren’t we the local church?”
Hamlin says game publishers, aware of GameStop’s future plans, are supporting the company, recognizing the need for a gathering spot where players can discover new games and enjoy the real-world company of other enthusiasts.
Not too long ago, that’s exactly the role GameStop played. Big game releases were celebrated with midnight launch parties, with lines to enter often numbering several hundred people deep. Developers signed copies of their games and offered giveaways to players. GameStop cash registers overflowed.
However, midnight launches mean players have to stay up late, which doesn’t fit today’s gamer demographics. The average gamer is now between 32 and 34 years old. So it’s no surprise the rise of digital game downloads sounded a death knell for late-night product extravaganzas.
Video games at a turning point
Video games are on the edge of a new paradigm shift, as game-streaming services prepare to launch, letting people play instantly—and potentially changing how many gamers get their new titles.
GameStop, says Hamlin, is seeking to adjust to the evolving landscape.
“We’re in this interesting friction of change for everyone,” he says. “Nobody knows how it’s going to end up, but we know that streaming services and subscription services are the future. The question is: How do you reconfigure and rethink the ecosystem to accommodate that in the best way for players? Our whole role is to be player focused.”
The company, with 2018 global sales of $8.3 billion—a 3.1% annual decline, with comparable store sales off 0.3%—is hoping its nearly 3,700 stores and 40,000 employees are the key to future success. They’re enthusiasts themselves and can be valuable sources of information for both hardcore players and shoppers who know nothing about the industry.
“We’re not selling widgets,” says Hamlin. “We’re not selling commodity items….This is something where there is a real passion around it. All we have to do is capture that in a retail experience.”
Strategy scrutinized
Some analysts are cautious about the long-term success of the strategy, but say the return to focusing on core values seems wise.
“We actually believe that the team is on the right path, although 5½ years late,” says Michael Pachter of Wedbush. “Had GameStop done this in late 2013, the company would be debt free and would have had significantly more cash available to return to shareholders….While we are not particularly optimistic that GameStop’s new management will accomplish a lot with its new business initiatives, we are quite optimistic that they will manage the business and harvest cash.”
Hickey takes a more dire approach, saying in a note the management team “lacked any coherent articulation of a tangible vision on how to transform the business.”
While digital distribution and streaming are both expected to continue to grow, neither of the upcoming consoles from Microsoft and Sony will forego the physical drive, meaning there’s still a market for game discs. Pachter notes that major game publishers still sell 50% of console games in physical form.
That’s a wedge GameStop hopes it can use, as it also helps keep the company’s used game business alive—traditionally its chief revenue source. Customers who still buy those regularly, says Hamlin, could be key to the retailer’s chance for turning things around.
“Something Wall Street doesn’t understand is lower income gamers are a massive, massive audience and GameStop does a yeoman’s service in serving that customer,” he says. “That customer typically pays in cash. That customer doesn’t have massive bandwidth in their home. That customer is a value shopper.”
More must-read stories from Fortune:
—Hands on with Google’s Stadia video game-streaming service.
—Fortnite maker acquires social video app houseparty.
—E3 2019: Twitter leaker posting spoilers claims Nintendo threatened legal action.
—Sears’ seven decades of self-destruction.
—What Kohl’s awful numbers tell us about J.C. Penney’s prospects.
