Videogame seller GameStop is dealing with tough times. The company is laying off workers and shutting down stores in certain countries as it deals with a significant decrease in sales that experts say is not sustainable. The company’s current difficulties are caused by various factors, including increased competition from online retailers and reduced consumer spending due to economic uncertainty.
According to Reuters, analysts say more people download games than buy them in stores. We’ve reported on this often: physical game sales will eventually be something that’s retro, and by now, buying a digital game is the standard. According to Wedbush Securities analyst Michael Pachter, this change is causing problems for physical stores like GameStop, since people can just download games at home. He thinks GameStop won’t make as much money unless they can get more people to come to their stores.
The downturn is similar in the broader video game business, with companies like Take-Two Interactive Software and Electronic Arts also announcing disappointing profits lately. Increasing borrowing expenses, ongoing inflation, and a general decrease in demand since the pandemic’s peak are all factors in this downward pattern.
The only reason that GameStop really took off during the pandemic was because of the Gamestonk meme. There’s a lot that went into the money, and Reggie Fils-Aimé touches on this in his book, Disrupting the Game: From the Bronx to the Top of Nintendo. He was working for GameStop at the time and described it as a real windfall. However, that kind of thing was not meant to last, and we’re seeing it finally hit them hard.
In reaction to these changes, GameStop has taken steps to reduce costs. Besides reducing its workforce, the company has recently stopped operating in Ireland, Switzerland, and Austria. However, despite making efforts, GameStop’s fourth-quarter revenue dropped to $1.79 billion from the previous year’s $2.23 billion. The retailer’s expenses decreased by 21.2% due to lower labor costs and reduced marketing spending, but this did not reverse the sales decline.
Analyst Michael Pachter is concerned that ongoing cost-cutting and efforts to break even will still leave the company with a shrinking, unsustainable sales base. GameStop is facing competition from Amazon and eBay, but the main issue is the shift towards digital downloads and away from physical game purchases. We’re not going back to physical sales, so it seems like we’re near the end of the game for GameStop.
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