- Executive Summary
GameStop Corp has revolutionized the video game industry. It has evolved from an educational software dealer known as Babbage’s to one of the largest video game retailers in the world. It aims to utilize video games and the associated technology together with something it calls geek fanaticism for “The Power of Good”. The company proposes to improve the welfare of youth by promoting inclusive, responsible communities. This paper analyses the external and internal environments within which GameStop conducts business. It reflects on the challenges facing the company by reviewing the industry’s macro-environment. An analyses of the company with respect to its leadership, strategy, and organizational structure and culture is provided. Finally, a financial analysis is included culminating in a strategic fit analysis.
- The GameStop Story
GameStop Corp. started out as a small educational software dealer in Dallas, Texas in 1984 known as Babbage’s Etc. LLC. This company was sold to Barnes & Noble in 1999 and then merged with a company called Funco, Inc. After this merger the company changed its name to GameStop which was followed by an initial public offering in 2002. In 2004 the company spun off from Barnes & Noble.
In the following years GameStop acquired EB Games, Rhino Video Games, Free Record Shops (Norwegian retail stores), Micromania (a leading video game retailer in France), Kongregate (a leading free-to-play web and mobile gaming destination), Impulse, BuyMy Tronics, Simply Mac (which become Technology Brands), Spring Mobile, AT&T Wireless, and Geeknet, Inc. (the parent company of ThinkGeek) among other acquisitions.
GameStop is a Fortune 400 and S&P 500 company. It is a global company of specialty retail brands. It operate over 7000 stores in 14 countries. It is currently led by CEO Paul Raines and its stock symbol is GME (NYSE). It is headquartered in Grapevine, Texas. It employs over 40,600 people worldwide with annual revenues of $8,607.9 million for FYR 2016. (MarketLine, 2017) It is divided into two operating segments: Video Game Brands and Technology Brands.
The company divides its business operations into eight product categories: new video game hardware, new video game software, used video game products, video game accessories, digital, mobile and consumer electronics, other products (including collectibles), and Technology Brands (AT&T, Cricket, and Apple retail stores). The company operates specialty retail stores under the names EB Games, GameStop, ThinkGeek and Micromania where the products sold do not differ substantially irrespective of the geographic location. The company publishes what is considered the world’s largest publication on video games known as Game Informer. GameStop also operates a portfolio of electronic commerce web sites.
GameStop conducts business in five segments consisting of Video Game Brands geographic segments: United States, Canada, Australia and Europe, and a Technology Brands segment. Each of the Video Game Brands segments are largely retail operations, with the stores handling the sale of new and pre-owned video game systems, software and accessories. These stores sell downloadable digital products, network point cards, prepaid digital, prepaid subscription cards and digitally downloadable software. They also sell certain mobile and consumer electronics products and collectible products. Its Technology Brands segment includes Spring Mobile and Simply Mac businesses which sell mobile and electronic products.
Video game products, refurbishment of video game hardware and software and consumer electronics is a competitive advantage GameStop holds and a critical component of the buy-sell-trade model that GameStop promotes. In addition, GameStop manages PowerUp Rewards which is its U.S. loyalty program. The program has over 30 million members. GameStop is dedicated to promoting innovation in the retail industry to discover new technology to ultimately produce positive customer experiences.
2.2 Reason for the Study
This study attempts to identify the critical challenges faced by GameStop taking into account the industry within which it operates, the company’s organizational structure and culture and its global approach to expansion by means of acquisitions focused on diversification. GameStop quickly rose to the top of the video gaming industry, but changes to the industry, technological advances and customer opinions have subsequently changed.
- External Analysis
In order to perform a general environment analysis for a particular industry, one must first assess the general external environment of that industry. The external environment includes global factors, general factors and industry specific factors. Reviewing the macro-environment affecting the industry is foremost, as this environment is made up of six components: economic conditions, political factors, sociocultural forces, environmental forces, legal and regulatory factors, and technological factors. These are components over which a firm has no control, but yet affect its ability to conduct business. Once the external environment has been identified a company can form a strategic vision of the path to be followed as favorable strategic options have been identified.
3.1 General Environmental Analysis
The purpose of conducting an analysis of the general environment is to assess what external forces exist that can impact the firm’s industry and its associated markets. The macro environment is addressed and how it influences decisions made by an organization. This information assists the firm in determining what it must do to position itself well within a competitive environment.
3.1.1 Demographic Segment
The video game industry has traditionally been modeled towards the male youth market, but recent studies have shown that while the majority of gamers tend to be male, the percentage of male to female players has fluctuated over the years and there are ever more females playing video games. Research suggest that players are between the ages of 18 to 34, but a recent study in Europe stated that 51 percent of teens under the age of 15 play video games. In the United States, 59% of individuals, roughly 150 million play video games, while 97% of teens play video games. [citation] The first generation of video game players has grown up, their children have been raised in homes with consoles and PCs at their disposal. As a result the target market has multiplied exponentially.
The average gamer is male, with a median age of 26 and household income of approximately $50,000. The average age of a game purchaser is 35, and it is rising as older players continue to update their game consoles. The video game playing demographic is much wider and more diverse in age and gender than common stereo types have shown. Games are developed for all ages and groups as individuals spread over a vast variety of backgrounds and socioeconomic statuses play games.
3.1.2 Economic Segment
Video games are a billion-dollar business and have been for many years. In 2016, the video game market in the United States was valued at 17.68 billion U.S. dollars. That same year U.S. consumers were said to spend roughly double the amount on gaming content, hardware and accessories. What is important is that the first generation of gamers is now grown up with significant spending power; therefore, despite high penetration rates among kids, video games can no longer be considered solely a child’s play. In fact, it was found that video gaming is gaining on popularity among the seniors in the United States. Fun and mental agility are among the main reasons cited by the older gamers as to why they choose this pastime.
Among the many prosperous representatives of the video game industry are the three major players that have been in the game for decades and remain in the leadership positions as of 2015. Those three are: Sony , Microsoft, and Nintendo. Sony’s PlayStation 4 is the bestseller among current generation consoles. By the end of 2015, Sony had sold 16.75 million units of the popular console. All three gaming brands are also the most recognized among gamers in the United States, with Nintendo being the frontrunner.
This text provides general information. Statista assumes no liability for the information given being complete or correct. Due to varying update cycles, statistics can display more up-to-date data than referenced in the text.
In this segment we identify economic factors that affect market performance. Specifically, factors that can influence the amount of money individuals can spend within the industry. Economists use gross domestic product (GDP) to measure economic progress, therefore if GDP increases the implication is that the economy is doing well. GDP is based on personal consumption data. In the U.S. GDP increased 3.3% in the 3rd quarter of 2017. An increase in consumer spending bodes well for the video game industry. Forecasts indicate that GDP will continue to rise into 2018.
The European Union’s GDP growth is expected to remain stable at a level of 1.5%-1.8%. Canada’s GDP is forecast to begin to decline to under 2% after 2018 and then remain steady, while Australia’s GDP is expected to remain steady at just under 2% through 2021. (IMF, 2017)
Another economic indicator is inflation which reflects the stability of a particular economy. A low stable inflation rate, considered less than 2% is believed to preserve the value of money by keeping low, stable and predictable prices. The U.S. inflation rate is expected to remain in the 2% range into 2021. In Canada the inflation rate is not expected to surpass 2.1% and the European Union after having reached 0% in 2015 is expected to grow in 2017 and level off near 1.8%. (IMF, 2017)
Given these projections for a stable economies in the next five years within the areas that the company operates and does business it appears that the video game industry is set to continue contributing to the United States and the global economy.
3.1.3 Political/Legal Segment
The video game industry is subject to national and international regulations. There are contractual, legal, and ethical obligations unique to the industry. Video game retailers must adhere to video games ratings and comply with policies restricting sales for example to minors. Many issues that relate to the legal segment in the video game industry revolve around intellectual property.
3.1.4 Socio-Cultural Segment
Video gaming is part of a shift away from traditional media and traditional media delivery systems. This is a result of the internet and mobile internet access. The transportability of mobile devices has fueled the industry with the play anywhere concept. Cost has become an important factor in the rise of the consumer base, because to participate in mobile gaming a player does not have to invest in a PC or console, which can be a large investment.
Gamers are usually divided into two categories: core and casual players. A core gamer plays at least 20 hours per week and has purchased four games in the past six months. A casual gamer plays half as often and purchases less than one game in six months. [Citation] The preconceived notion that a gamer is a socially inept teenage male playing in his parent’s dark basement at night all alone is no longer accurate. In reality gamers are just as likely to be women as men and to have above average incomes. Video games are becoming an accepted activity for the average person as well as becoming an integral part of American culture.
3.1.5 Technological Segment
Video games are a byproduct of technology. Continued technological advances are paramount for video game developers, hardware manufacturers and subsequently retailers. The early video game platforms were on mainframes, but with the help of better integrated circuits and other technologies the industry has developed arcade, handheld, console, and PC capabilities. Subsequently technology progressed to PDAs, calculators and mobile phones. These mobile devices are changing the market.
Moreover, the internet has created opportunities within the industry thanks to facets which for instance allow multiplayers divided by distance to interact. Technology has helped endorsed the development of games that lower the learning curve which gives both the young and old an opportunity to participate.
3.1.6 Global Segment
Video games are an international phenomenon with players from India to Germany to Singapore and Australia in the market. Newzoo projects that the global game market will reach $108.9 billion in 2017 with mobile games accounting for 42%. As demonstrated in Figure 3.2, the Asia-Pacific region stands to comprise half of the global games market in 2017.
More and more people both young and old, male or female, novice and expert are making video games an integral part of their leisure activities similar to participating in sports. Gamers send game requests through social media, fight off unsavory characters, travel through time, play sports, gamble, and search for hidden items in an ever-expanding global culture. Game companies are becoming global entertainment companies. As they evolve, game companies have the opportunity to become larger than the traditional media and entertainment companies.
Figure 3.3 demonstrates projected revenue from the global games market through the year 2020. Market research firm Newzoo projected global revenue would reach over 128 billion dollars by the year 2020; an overall compound annual growth rate of 6.2%. (McDonald, 2017)
Figure 3.3 Project Revenue in Global Games Market
Source: Newzoo, 2017
3.1.7 Summary of General Environment Analysis
External factors such as per capita disposable income and time spent on leisure activities impact industry performance. The industry appears to be in a position to experience growth as the target areas all appear to face positive economic futures with progressive GDP increases and low stable inflation. This provides an increase in the ability to spend which is necessary for an industry that provides a leisure type entertainment product.
The socio-cultural segment looks promising as younger and older individuals turn to video games and the different formats by which they are provided. This provides specialty stores such as GameStop with various opportunities to continue to maintain retail sales of physical games, add digital downloads and tap into the mobile game segment by means of recent acquisitions. The company must keep abreast of technological advances as the industry is built on innovation and the premise of what will be the next best game.
3.1.8 Driving Forces
A driving-forces analysis is used to determine what strategy an organization can develop to prepare for the possible future impact that such forces may produce on the organization’s operations. The idea is to identify these forces early on and draft strategy to react and adapt to either a new or evolving environment. The video game industry provides a leisure, technology driven product. Of concern to companies operating in the industry are changes in the manner in which individuals purchase these products and emerging new internet capabilities and applications. On a positive note, changes to customers’ attitudes and lifestyles have expanded the market.
A. Customer Preferences
Video games have become an established part of society which bodes well for a specialty retailers, but the traditional method for generating revenue of physical sales through brick and mortar specialty stores or an online setting has been declining. Major changes in the way consumers purchase the products requires that the industry entertain other avenues for both sales and associated products. The move away from physical games to digital downloads must be addressed.
B. Emerging New Internet Capabilities and Applications.
Today there is access to a wide variety of game types on various platforms – access is quickly becoming less of a barrier for gameplay. Games, both digital and non-digital, are an incredible attraction for so many people. Gaming-On-Demand is a new online service which releases the player from conventional console games. Users can play video games on any computer or television as long as there is an internet connection. This could result in eliminating the need for console manufacturers and specialty stores.
Gaming-on-Demand has cross-platform functionality, on-demand game delivery, instant upgrades and the ability to play from any location with internet. It is a subscription based model where players can get the latest video games at a fixed cost rate. (Chen, Guo, Labof, Muik & Thaik, 2011)
C. Changes in Societal Concerns, Attitudes and Lifestyles.
Although males have been the primary purchasers of video games, females are increasingly a larger proportion of participants reflecting a more diversified consumer base. There has also been a shift in the age group traditionally targeted for video games. The age span has increased as older gamers continue to participate.
Demand for video games will increase as disposable income grows. New software sales experience a more prolonged surge for two to three years as development cycles adapt to the capabilities and consumer reception of the new software. Sale of video games delivered in digital form and the expansion of other forms of gaming should fuel future growth.
3.2 Industry Analysis
The video game industry is sometime referred to as the interactive entertainment industry. It is the sector of the economy involved in the development, marketing and sale of video games. It is made up of many job specialties and its various sections employ thousands of people worldwide. Herein will be discussed the various components of the industry and the competition that exists within the various segments that comprise the market.
3.2.1 Description of the Industry
The video game industry is a multi-billion dollar industry. A video game is an electronic game. It can be played on various devices including a PC, a gaming console and a mobile phone. Video games have developed at a rapid pace since the first games where sold in the 1970s. Games in today’s market offer photorealistic graphics and imitate reality with a precision that may have never been contemplated when the product was created. There are thousands of companies developing and publishing games in the U.S and abroad. These companies are able to compete in a world market by utilizing continuous innovation and highly skilled/educated workers. To work in the industry individuals require advanced training in computer graphics, animation, software design, and programming. Companies within the industry must be on top of innovation, imagination, knowledge of the industry and continuously changing markets.
3.2.2 Industry Dominant Economic factors
The majority of revenue in the industry has typically come from the sale of digital PC and console games followed by mobile games. The use of console games has been changing over the years with general demand focused on multiplatform devices. In today’s market a gaming console is not only used for gaming. It has become common to use consoles to watch video content or stream music. Game companies rely almost entirely on direct consumer spending.
Mobile gaming is the largest segment showing $46.2 billion in revenues in 2017 making up 42% of the global market. Console is the next largest segment producing revenues of $33.5 billion for the year. Gamers are expected to generate $108.9 billion in game revenues with digital revenues expected to be $94.4 billion. (Newzoo, 2017)
3.2.3 Market Size
The electronic game industry is very competitive and subject to rapid changes in consumer preferences as a result of a continuous cycle of new product introductions. It is estimated that there are 2.2 billion people worldwide playing video games. GameStop competes with a number of groups including mass merchants and regional chains; computer product and consumer electronics stores; video game and PC software specialty stores; toy retail chains; direct sales by software publishers; and online retailers and game rental companies. In addition, video game products are distributed through digital delivery.
GameStop competes with sellers of pre-owned and value video game products. Finally, GameStop competes with other entertainment activities such as casual and mobile games, movies, television, theater, sporting events and family entertainment centers. Figure 3.4 is a strategic group map which indicates GameStop’s competitive group. The map depicts where rival firms stand in the industry.
Figure 3.4 Industry Group Map
GWU, Strategy Formulation and Implementation
Best Buy Strategic Analysis, Taposh D.
3.2.4 Market Growth Rate
The market for video games will extend beyond young males, as more women and consumers of all ages turn to the industry for entertainment. Developments in user interface including smart phones, laptops, and personal computers show that market development will continue over the next few years. The cost of internet has been decreasing and together with the availability of continuous new introduction of games is expected to fuel the video game market demand. The increasing compatibility added to the hardware capacity of PCs, laptops, tablets, smart-phones, and IPads may further spur market development. A growing number of adults play video games as entertainment and this is expected to fuel expansion. As the world’s population increases and GDP remains steady in developed nations while emerging nations expand their economies the consumer base for the video game market should continue to grow.
3.2.5 Industry Trends
Most games today provide consumers with three types of entertainment: playing, observing and designing. Game companies are turning into entertainment companies in an effort to make video games the world’s favorite pastime. Mobile games will continue their path towards outperforming PC games. The mobile games market has started to mature and is beginning to look like traditional games publishing. This will require higher production values and marketing.
Revenue growth will continue to be strengthened by new technologies as well as online games. More systems will provide internet connectivity. Growth is expected to remain steady for the next five years, as industry operators continue to expand their internet-enabled services and carry on with improvements to consoles.
3.2.6 Five Forces Analysis
Michael Porter’s Five Forces Analysis is a powerful means to determine the competitiveness of a particular business environment. The forces within an industry can effect profitability, therefore being aware of these forces will allow an organization to adjust its strategy as necessary. It will permit a company to capitalize on a strong position or take steps to improve a weak position in an effort to avoid missteps. Figure 3.5 depicts the five different forces.
Figure 3.5 Porter’s Five Forces
Porter’s Five Forces of Competitive Position Analysis CGMA (2013)
This theory is based on there being five forces that determine the strength of competition. Companies can utilize the five forces to determine the attractiveness of the market and make a determination as to whether the company’s products or services can be profitable within said market. GameStop can use the analysis to ascertain how to build a sustainable competitive advantage in the electronics stores industry.
188.8.131.52 Power of Buyer
In the video game industry the bargaining power of buyers can be high because it is made up of individual shoppers, children, students and business customers who are all demanding different aspects and who want to buy the best product at the cheapest price. Byers in this industry have low switching costs, but they also have no control over games prices. Powerful buyers can demand discounts and cut into the company’s profitability. GameStop must build a large customer base which will reduce buyer power and should continue to innovate new products as these products can command top dollar and therefore eliminate or reduce the need to provide discounts. A steady stream of new products keep your customers coming back.
184.108.40.206 Power of Suppliers
Bargaining power of supplier is medium because it involves computer and cellphone manufacturers, radio and TV parts vendors and computer software vendors. Most video game sellers buy their products from numerous suppliers. If there is a supplier in a dominant position it can cause a drop in margins for GameStop’s. If suppliers have high bargaining power the result is lower profitability. Methods to counterattack powerful suppliers include having efficient supply chains with various suppliers and developing a dedicated supplier line similar to Walmart’s where the supplier depends on the company.
220.127.116.11 Threat of New Entrants
Any threat from a newcomer to the video game retail market comes from originality as new companies bring new ideas and new ways of doing things such as a lower pricing strategy or providing new value to customers. This may put pressure on GameStop. In order to confront this challenge GameStop will have to continue to provide new services and products. New products produce new customers and may bring back old customers. The company should continue to spend on research and development so that it maintains its leadership position in the market and as a result dissuades new entrants who are seeking extensive profits. The company can depend on its brand awareness and its knowledge of gaming.
18.104.22.168 Threat of Substitutes
Substitute products (books, magazines, theater, non-computer games) is low, but there are providers of services such as Netflix that may be considered high if they offer a service that is different from current offerings. GameStop can react to this type of challenge by ascertaining the customers’ needs and by being service oriented.
22.214.171.124 Competitive Rivalry
Competition is what commands the market. If competition is intense then the result will be lower prices and lower profitability. The electronics store industry is very competitive. This may affect long-term profitability. Ways in which this can be mediated are by sustainable differentiation and by working with competitors to increase the size of the market.
The company’s main competitors in the U.S. are Wal-Mart Stores, Inc. (“Wal-Mart”); Target Corporation (“Target”); Amazon.com, Inc. (“Amazon.com”); and Best Buy Co., Inc. (“Best Buy”). In Europe the main competitors are Game Retail Limited based in the UK and its Spanish affiliate, Game Stores Iberia. Throughout Europe there is also competition with major consumer electronics retailers such as Media Markt, Saturn and FNAC, major hypermarket chains like Carrefour and Auchan. Competitors in Canada include Wal-Mart, Best Buy and its subsidiary Future Shop. In Australia, competitors include K-Mart, Target and JB HiFi stores. Figure 3.6 shows the U.S. market share and GameStop’s prevalence.
Figure 3.6 Competitor Overview
GameStop already has deep penetration in the video game retail market, with a high profit margin of over 34%, but now it is in a position whereby it needs to maintain or surpass that level. The growth of online gaming and services such as Xbox Live are posing significant risk with respect to future productivity.
When analyzing the competitive forces GameStop can get an idea of what impacts the profitability of the company within the industry. This allows for the identification of trends at the initial stages and the ability of the company to react to opportunities or threats.
The table below summarizes short and long term assessments.
Table 3.1 Five Forces Analysis
|Threat of New Entry||M||M||M||M||M||M|
|Threat of Substitutions||L||L||L||L||M||H|
The competitive rivalry appears to be the most significant force resulting from the need to move to digital content and as a result of online gaming. GameStop’s traditional business may be severely affected by these changes as it ties in to the threat of substitutions in the future. The changes to the industry from physical sales to digital and subsequently online gaming makes it less attractive and possibly less profitable.
3.3.7 Industry Key Success Factors
Industry’s Key Success Factors (KFS) are the functions, activities, or business practices, defined by the market that are critical to the company/customer relationship. They are subjects that a company should focus on. They include strategy elements, product & service features, operational methods, and resources. They may also contain the competitive capabilities which are needed in order to succeed in an industry. Said factors vary as per the industry and change pursuant to competitive conditions.
Key Success Factors for the Video Games Retail Industry include:
- Aggressive marketing/franchising;
- Brand awareness and expertise;
- Ability to quickly adopt new technology; and
- Downstream ownership links.
Customers choose brands they associate with and in this type of industry brands they believe can provide expertise. GameStop’s move to confront the emergence of digital games is by bringing customers into the store to purchase and download digital games and other products. This in turn promotes brand awareness. Customers can then appreciate the company’s expertise and this helps to attract and retain customers against the competition. GameStop must continue to innovate in an effort to maintain a sustainable competitive advantage. There is no other major retailer whose focus is exclusively on video games. Finally the company’s trade-in and loyalty programs have yet to be threatened by any of the competitors.
4.0 Internal Analysis
To determine what position a company holds with respect to the external factors affecting the industry, an internal analysis is performed. The question revolves around the extent of the competitive advantage held by the company and to what degree its value chain operates.
4.1 Organizational Analysis
GameStop sells video game products in the U.S. in all 50 states, Puerto Rico and Guam. In addition it sells in Europe, Canada and Australia. The business is divided into Video Game Brands – specialty retail stores and Technology Brands – mobile and electronic retail stores. The company refurbishes videogame hardware and software and consumer electronics. Global refurbishment operations centers (ROCs) are located in Australia, Canada, France, Germany, Ireland, Italy, Sweden, Spain and the U.S. In addition, the company has a unique buy-sell-trade business model.
4.1.1 Corporate Mission
GameStop’s corporate mission is to make the most popular technologies affordable and simple. The company is passionate about serving others and creating great experiences for its customers and its employees. The company seeks to disrupt legacy thinking with innovation and agility. The company believes that maintaining these standards and living these values will allow it to be impenetrable to the challenges of the competition.
4.1.2 Products and Services
GameStop’s products and services are divided into two main business segments. Its traditional business is Video Game Brands which comprises the sale and refurbishment of video game hardware and software, the resale of video games, digital, accessories, and collectibles. Technology Brands is a relatively new acquisition. It sells mobile and electronic products including a full line of Apple products such as laptops, tablets and smartphones, as well as the associated services for those products. The company publishes Game Informer, a video game magazine in print and digital form. Finally the company utilizes omnichannel marketing in its portfolio of electronic commerce web sites which allows customers to purchase video game products and other merchandise online.
Table 4.1 GameStop’s Major Products, Services and Brands
|Video Game Hardware||Testing||Game Informer|
|Video Game Software||Repair||Electronic Boutique|
|Used Video Games||Relabel||Kongregate|
|PC Entertainment||Repacking and Redistributing Defective Video Game Products||Power to the Players|
|Mobile Products||E-retail||Simply Mac|
|Tablets and Laptops||ThinkGeek|
|Video Game Accessories||GameTrust|
Paul Raines was named CEO in 2012 and has been with the company in various positions since 2008. He is currently on leave and Thomas DeMatteo, Executive Chairman is Interim CEO. GameStop leadership is looking for passion in innovation so as to drive a high rate of change with the assistance of an aligned team. The company has a broad-based executive management team with extensive experience in all aspects of the retailer sector. The objective is to leverage the management team and core competencies to identify other retail concepts that can be acquired and therefore rapidly expand. (GameStop 10K, 2017) The company is moving towards a self-managed team structure with the objective of promoting from within. Team leaders are selected based on a balance of technical and social skills. The mission is to create an understanding of task significance.
4.1.4 Organizational Culture
By means of its recent acquisitions GameStop has had to incorporate the specific cultures of those acquisitions. The company has a decentralized culture. It maintains the culture of its founder which is entrepreneurial. As a result of recent developments and change to the industry, the company has been forced to embrace said change by establishing a culture of informed risk-taking. It also has a new organizational commitment to IT. The company continues to build on its family based culture, whereby employees are family and treated as such.
Stores are staffed with one leader, one assistant leader and sales associates. GameStop aims to cultivate a work environment that attracts employees who are game enthusiasts. In this way they are knowledgeable about the product and can better assist the customers. Employees are provided a targeted incentive program so that the full range pf products are promoted. In this manner profitability is maximized. The company conducts store leader conferences which provide intensive training. It makes best efforts to train, promote and retain its employee base.
A company’s structure comprises its organizational chart which determines how decisions are disseminated. It also includes the social structure which identifies how the company’s employees interact with the company and each other. GameStop’s philosophy is that the company is a large family and everyone is treated as such. The superstructure which provides the company’s culture and values or what the company stands for rolls off of this premise which is providing the best possible experience for both customers and employees.
A company must select a competitive strategy in order to devise a plan for future growth. Game Stop has selected best cost as a strategy and with it best experience. Under the CEO J. Paul Raines, GameStop has successfully diversified revenue sources from its narrow product range to mobile services and games, digital games, online magazines, and consumer electronics. During the past few years the company has transformed from the world’s largest specialty retailer of physical video game products into a family of retail brands selling many of the world’s most popular technologies and pop-culture products. (GameStop 10K). The company is poised to expand its global family of specialty retail brands.
126.96.36.199 Current Strategy
- The company is currently carrying out a strategy focused on maximizing brick and mortar stores so that it can utilize the stores to grow its digital business. Opening new stores is the target and operating them so that they are profitable is the goal. The company plans to close stores which are underperforming.
- The company is planning to expand its pre-owned business. The company believes it has the largest selection of pre-owned video game products. This provides a unique advantage within the industry, one which will be a spring board for growth.
- Sustaining and growing the customer base is the strategy. Capitalizing on reputation and brand awareness to engage the customer and increase membership in rewards program.
4.1.7 Summary of Organizational Analysis
GameStop has embarked on an adaptation program designed to keep it relevant in a changing industry. It has eliminated nonperforming assets and acquired complementary assets which are meant to maintain and ultimately increase competitive status. It is maintaining its entrepreneurial culture by means of innovation and embracing sociotechnical systems to restructure work design which shall result in the creation of job opportunities while identifying those members that are not motivated or performing at company standards. The company’s interaction with its employees promotes a family environment where everyone is taken care of. 4.2 Analysis of Firm Resources
A company’s resources must be evaluated to determine what is at the firm’s disposal to implement the strategies it devises. The company must comprehend its resources so they can be utilized to create a means to compete and be successful. Resources are defined as the tangible and intangible assets a firm uses to choose and implement its strategies. (Peng, 2014)
4.2.1 Tangible Resources
This type of resource refers to those that are physical assets. Tangible assets include both fixed assets such as land, buildings, equipment and current assets such as inventory, vehicles and furniture. Tangible resources are observable and more easily quantified resources and capabilities. (Peng, 2014) We can divide tangible resources into financial, physical and technological. GameStop has a strong financial position with a large profit margin. It is a publicly traded company and therefore can obtain resources from the financial market. Its physical resources comprise land, buildings and inventory. Its technological resources are those it is developing to migrate to a cloud based business. The company has proprietary inventory management systems and point of sale technology. It has developed proprietary technology to work with developers so that DLC and full-game downloads can be sold in the stores and on e-commerce sites.
4.2.2 Intangible Resources
This type of resource consists of nonphysical assets which include patents and trademarks, as well as copyrights, goodwill and brand recognition. Other intangible assets consist primarily of tradenames, leasehold rights and amounts attributed to favorable leasehold interests. (GameStop Corp. 10-K). Intangible resources can be divided into human, innovation and reputation resources. GameStop has taken measures to train and engage its employee base with a sociotechnical approach. Innovation is very high as it holds a number of trademarks including GameStop, Game Informer and EB games, The company pursues registration of its marks and opposes infringement of the same. Many of its trademarks are registered not only in the U.S., but worldwide. The company enjoys high brand awareness which has produced its favorable reputation and causes the company to be considered an expert in its field.
4.2.3 Summary of Firms Resources
GameStop has valuable tangible and intangible resources. Its dedication to innovation assists it in achieving its goals. However it must pay special attention to technology as it is the basis for the company’s products. It has embarked on obtaining proprietary technology which will help it connect in more and varied ways to the customer.
In discussing the capabilities that an organization must have in order to achieve its business model and satisfy its mission the discussion revolves around the skills rooted in people, process, and/or technology. A capability is an ability that can be applied to achieve an outcome.
Customers are the recipients of a company’s capabilities, which may be innovation, customer experience or brand awareness.
GameStop has a strong capability in its methods of hiring the appropriate type of staff, training them and providing incentives so that they in turn are able to provide a unique customer experience. It has a capability in its processes whereby it has expended its offerings so that it is able to attract the entire gamer population. Whether the preference is to visit a store, purchase a product online or searching for information related to new products, GameStop is covering all aspects of the gaming sphere. It has put processes in place to expand its technology as a result of the constantly changing digital environment. The company required a sociotechnical change to focus on a cloud based business model to stay competitive. It has developed technology to address DLC and downloads so that they can be purchased instore or online. These capabilities place the company in a position to continue working towards its business goals and achieving its mission.
4.3.1 Value Chain Analysis
Value chain analysis is a strategy tool that is utilized to analyze the internal activities of a firm. The objective is to determine which chain of activities are the most valuable to the customer. The value chain consists of activities and margin. The value in a product or service is the physical and technological activities used to produce that product or service. The margin is the difference between the total value of the product or service and the cost of the value activities. In this determination identifying the source of cost or differentiation advantage can indicate where improvement is needed to obtain a competitive advantage.
Value activities are made up of primary and support. Primary activities include logistics, sales and customer service. Pursuant to Michael Porter’s Value Chain primary activities can be subdivided into inbound logistics, operations, outbound logistics, marketing & sales and service. Support activities consist of firm infrastructure, human resource management, technology development and procurement.
GameStop’s value chain connects suppliers on the upstream side to buyers on the downstream side. It produces a value system. The competitive advantage of the company is based not only on the firm specific value chain, but also on the value chain the company belongs to.
4.3.2 Core Competencies and Sustainable Advantages
4.3.3 Summary of Firms Capabilities
4.4 Financial Analysis
4.4.1 Valuation Analysis
GameStop has been underperforming as Figure 4.1 indicates. This can be tied to very strong competition from online retailers like Amazon (AMZN), aggressive hardware promotions by other retailers like Best Buy (BBY) and the ongoing changes in software distribution.
4.4.2 Growth Analysis
4.4.3 Profitability Analysis
4.4.4 Financial Strength Analysis
4.4.5 Management Efficiency Analysis
4.4.6 Summary of Financial Analysis
5.0 Strategic Issue Analysis
5.1 Critical Challenges
Stiff competition, aggressive promotional strategies and declining store traffic are the preoccupying issues with which the retail sector must addressg. GameStop’s basic concern is the weakness prevailing in new software sales, which is heightening apprehensions about the impact of digital downloads on the same.
5.2 Resources and Capabilities
As a result of the constantly changing digital environment, GameStop is looking to refocus on a cloud based business model in an effort to stay competitive. By implementing a cloud based system that allows customers to interact with GameStop the company feels it can counterattack the forces of evaluation. It is turning to sociotechnical changes. It has formed a clear strategic vision in order to avoid uncertainty and raise employee engagement. It determined that unprofitable stores must be closed and replaced them with Cricket Wireless, Simply Mac and Spring Mobile stores. By reducing costs and bureaucracy it can promote a required systematic change.
Given the drive to diversify and acquire other businesses the company created a Center of Excellence (CoE) in financial planning and analysis staffed with analysts from the business units. The idea is to provide the businesses the partnership and services needed. The group is to maintain consistent standards regarding the manner in which the company invests capital and accounts for returns. Maintaining an adaptive technological structure is vital to long-term success.
5.3 Strengths or Weaknesses Analysis
The industry as a whole is in a very good position. It has a loyal client base that continues to grow as new generations become users, and older players have continued to play. The average age of a game purchaser today is 35, and the trend is that this will rise as older players continue to update their game consoles. The video games industry is currently in the growth phase of its life cycle, with revenue increasing at close to double-digit rates. There are new operators entering the market despite high barriers to entry, but the industry can count on customers who are not willing to sacrifice their entertainment spending even when the economy takes a turn for the worse. Industry value added, a measure of the industry’s contribution to the overall economy, is expected to grow at a 4.6%. GameStop is strategically well positioned as a specialty retailer, but sales growth seems to be a real weakness.
5.4 Opportunities or Threats Analysis
- The emergence of low-cost games for mobile devices may temper future growth opportunities for the industry.
- Publishers are increasingly turning to downloadable content to supplement their games.
- Within the used games segment a threat exist with game developers who obtain no royalties from the resale of these games.
- New games and consoles are expected to reflect the changing demographic of video game players.
- Both Technology Brands & Collectibles Business are growing at a very rapid pace and can help the company regain its lost position.
- Technology Brands, has been witnessing robust growth in AT&T authorized retail stores. Management anticipates sturdy performance of Technology Brands and Collectibles to continue in fiscal 2017.
- New hardware innovation in the video game category also looks promising.
GameStop’s foray into the collectibles and licensed merchandising category, and Technology Brands has been profitable and are posed to continue to drive company revenue.
GameStop’s strategy is in line with the KFS. It is on a mission to adopt new technology and its thrust of recent acquisitions within the industry in an effort to diversify its products and services should assist in confronting the challenging times ahead.
Factors for Demand Shift: population, regulation, technology, disposable income, change of customers’ taste/preferences.
Industry structure is what ultimately drives competition and profitability.
There may be higher industry profitability?
1. Disruptive: discontinues →revolutionary in nature → restructuring or re-engineering of strategy.
2. On-going: continuous → evolutionary in nature → keeping in the game.
- Stock has been riding a 21-month downtrend.
- GameStop is threatened by the continuing rise of digital downloads, both for PCs and consoles like the PlayStation 4.
- Struggling against digital competition.
- GameStopexpects to close between 2% to 3% of its global store footprint in 2017.
- GameStop has been the road to diversification that has included growth in the sale of collectible toys, and its purchase of AT&T-branded wireless retail outlets. This initiative has resulted in earnings from the promotion of the iPhone 8.
- Earlier this year the company launched Nintendo’s Switch console as part of the company’s core business. It helped push up global same-store sales by 1.9% in the second quarter. And while some Switch games are available for download, the console’s limited storage space and other factors may drive physical store sales.
Immediate Industry and Competitive Environment
A company’s competitive environment not only includes rival firms, but also buyers, suppliers, substitute products and new entrants. When performing the five-force analysis the idea is to determine the strongest force and how it impacts the industry’s profitability. If there is more than one strong force the industry will have to confront several trials.
Comparing GameStop’s results to its competitors, Gamestop reported a total revenue increase in the 2 quarter of 2017 of 3.42 % year on year. Yet this revenue growth was that of the competitors’ average revenue growth of 10.77 %, recorded in the same quarter. (CSIMarkets)
Questions to be answered
Does the industry environment provide the opportunity for above-average profitability?
The market positions of rivals. Industry members with similar competitive approaches and positions.
Uncertainty in the industry’s future: problems relating to stagnating buyer demand (severe problem?)
Dominant economic features, market size, and market growth rate in the industry?
Strategic moves made by rivals. Competitive intelligence – information that is useful in anticipating next strategic moves. Signals include: under pressure to improve financial performance, rivals seeking to increase market standing, public statements made by rivals, and profiles developed by competitive intelligence units.
- Casacampo. (2017, July 13). GameStop: What the Numbers Say. Seeking Alpha. Retrieved from https://seekingalpha.com/article/4087637-gamestop-numbers-say
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- Company Profile: GameStop Corp. (2017, July 22). Marketline. Retrieved from http://web.a.ebscohost.com.ruby.uhv.edu/bsi/pdfviewer/pdfviewer?vid=1&sid=2f74611a-b9d8-424a-b5aa-44e88bed89b5%40sessionmgr4007
- CSIMarket GameStop Corp. Retrieved from https://csimarket.com/stocks/compet_glance.php?code=GME
- International Monetary Fund. http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/weorept.aspx?sy=2015&ey=2022&scsm=1&ssd=1&sort=country&ds=.&br=1&c=193%2C946%2C137%2C546%2C156%2C181%2C138%2C196%2C142%2C182%2C359%2C135%2C576%2C174%2C936%2C961%2C184%2C144%2C146%2C528%2C112%2C111&s=NGDP_RPCH%2CNGDPD%2CPCPI&grp=0&a=&pr1.x=53&pr1.y=10
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- Morris, D. (2017, August 25). GameStop Stock Just Cratered, But Its CEO Thinks Wall Street Is Missing Something. Fortune.com. Retrieved from http://web.a.ebscohost.com.ruby.uhv.edu/bsi/detail/detail?vid=2&sid=311e2e3f-727a-40ea-90d1-23870c9a41a7%40sessionmgr4010&bdata=JnNpdGU9YnNpLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d#AN=124827839&db=bth
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- The Conference Board Economic Forecast for the U.S. Economy. (2017 November 8). Retrieved from https://www.conference-board.org/data/usforecast.cfm
- Trends, Insights, and Projections Towards 2020. 2017 Global Games Market Report. Newzoo. https://newzoo.com/insights/trend-reports/newzoo-global-games-market-report-2017-light-version/
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