For years we’ve seen speculation and indications that physical game stores like GameStop would eventually suffer the same fate as the once vital record store, bankrupted by digital downloads. Today’s earnings report provides a little more evidence of the retail giant’s slow slide into irrelevance, even if it’s going nowhere for now.
GameStop’s net profit for the pivotal fourth quarter of 2013 was 15 percent lower than the same time the year before, to $220.5 million, just below analyst estimates. Total revenue for the fiscal year increased slightly to $9.04 billion, but the company says that increase “was driven by a 29.7 percent increase in sales of new video game hardware associated with the launch of Microsoft’s Xbox One and Sony’s PlayStation 4.” That kind of new hardware-driven excitement is a nice boost for the retailer, but it’s not something you can expect year after year. Those consoles also have a much more robust downloadable game offering than their predecessors, suggesting that buyers of new hardware will be less likely to return to GameStop for their software needs in the future.
While comparable store sales rose 7.8 percent this year, GameStop also announced that it plans to close about 2 percent of its more than 6,000 retail locations in 2014. That downsizing comes after the chain already lost a net 180 stores last year and as it sees increased competition in its bread-and-butter used game business; even Walmart buys used games these days.
GameStop’s stock price is down more than 7 percent at the time of writing, making it one of the biggest value losers in the market to date. The company’s share price is down about 36 percent from a recent spike during the launch of Sony and Microsoft’s new consoles last November.
Despite the doom and gloom, the earnings report shows some bright spots as GameStop continues to diversify away from retail and into more purely digital businesses. The company achieved record $1 billion in revenue from its digital and mobile divisions. These are sectors that GameStop noted “didn’t exist [in the company] three years ago”, but now includes major assets such as digital distribution company Impulse and popular web gaming portal Kongregate.
However, digital diversification has not been entirely smooth sailing. GameStop also announced today that it is closing its streaming game division at Spawn Labs, which it acquired in 2011. “While cloud-based video game delivery is innovative and potentially revolutionary, the gaming consumer has not yet shown that it is ready to adopt this kind of service to the level where a sustainable business can be created around it,” said GameStop Vice President of Investor Relations Matt. Hodges to Gamespot. That’s a claim that services like the recently relaunched OnLive might disagree with.