Grapevine-based GameStop posted a larger than expected sales loss in the second quarter, further straining the company as it awaits a new line of gaming consoles that it hopes will rejuvenate its holiday season.
The retailer pivoted quickly into e-commerce sales at the start of the pandemic and saw an 800% increase in global online sales in the three-month period ending Aug. 1. CEO George Sherman described that as “strong progress toward our strategic initiatives.” That increase, however, made up only 20% of the company’s quarterly sales.
Overall, GameStop’s sales fell nearly 27% compared with the same period in 2019, with analysts describing the performance as disappointing. Stores were open 13% less on average as a result of pandemic-related closings.
GameStop has also closed 10% of its stores permanently in an effort to scale back its physical retail footprint and cut costs. About 40% of sales from areas where stores closed were recaptured through online sales and nearby stores, according to the company.
The company’s CFO told analysts that GameStop will close up to 450 stores this fiscal year, adding 100 to the closures already made public.
“We believe the actions we are taking to optimize the core operations of our business by increasing efficiencies and creating a frictionless digital ecosystem to serve our customers, wherever and whenever they choose to shop, are enabling us to navigate the COVID-19 environment while positioning us well for the launch of the next generation of consoles," Sherman said in a statement.
Major gaming consoles, which have historically been a boost to GameStop’s sales, haven’t had a refresh in seven years. And the next generation of gaming consoles from Sony and Microsoft are finally ready for a holiday season release.
Investment banking analysts at Baird see the coming console launch as providing “a life line to the company as management right-sizes the organization and adapts to changing consumer buying behavior.”
New consoles, however, will hit the market at a time when the purchasing power of many Americans has been hobbled by economic disarray.
And a decision by manufacturers to leave physical disc drives out of some new consoles could hamper GameStop’s ability to get a sales boost heading into 2021. GameStop’s business model still relies heavily on selling physical game discs since it can’t sell downloadable versions, which are bought directly through consoles.
Microsoft’s Xbox Series X, set to launch Nov. 10, will cost $500. Microsoft is also offering a slimmed down version of the console, called the Xbox Series S, for $300. The slimmer, cheaper version will lack 4K resolution and have lower processing power and no disc drive for physical games.
Sony hasn’t yet released the pricing for its coming PlayStation 5. Game developers readying new titles for the next generation expect it carry a price tag of $500 or more, according to Bloomberg.
Sony also is reportedly planning to produce only a limited quantity of PlayStation 5 consoles initially, and will offer a “digital edition” of the console without a disc drive.
To accommodate the highest sticker prices of any new consoles to date, GameStop plans to introduce payment plans that could help cash-strapped consumers get their hands on the new platforms.
It’s considering multiple options, including a layaway system in which the product is held until payments are made, a rent-to-own plan that includes a minimum down payment and the ability to pay off the console in installments, and a separate interest-free payment plan through third-party services such as Quadpay and Klarna, according to company emails obtained by Venture Beat.
Microsoft also has its own competing 24-month payment plans.