Gamestop – company overview part 2

Here is part two of my Gamestop Analysis for Strategic management at UTD.

Even with increasing competition, Gamestop has used the current boom in the videogame industry to expand its base and exposure at an increasing pace. Gamestop has had at least a 40% increase in stock appreciation per year every year since 2003, and was ranked as the 7th fastest growing retailer from 2000-2005, by two different independent national reports (Gamestop Investment Annual Meeting). The Corporation has used the increasing influx of cash to open new stores at an increasing pace, while simultaneously decrease the company’s debt. This optimized business plan will allow Gamestop to continue to grow at a record pace while lowering overall debt. As long as the videogame industry as a whole continues its record expansion Gamestop can continue to be the leading retailer in the industry as long as the firm pays attention and reacts to the actions of its direct competitors and future potential competitors.

Gamestop has many resources available to maintain continued growth over the next decade including an established consumer base, increased revenue from used video game sales, and the company’s relationship with video game publishers. In order to be successful, Gamestop must utilize these resources in a productive way to ensure optimum growth and exposure.

The first and primary resource Gamestop has at its disposal is its consumer base. Gamestop reaches this base largely through its chain of video game retail stores (Gamestop Investor Relations). As previously stated, Gamestop is the largest video game retailer in the world. This established consumer base gives the company an advantage against the competition. Gamestop has a focused approach and concentrates on a niche market. Instead of selling a broad range of electronics, the company has chosen to focus primarily on video games and accessories. This gives Gamestop the advantage of being able to open much smaller stores, but in much larger numbers than the company’s competitors. Gamestop has over six times as many stores as its main competitor Best Buy (Reuters Financial Website – Best Buy). By placing stores in neighborhoods and shopping centers, Gamestop has allowed itself to be much more accessible to its customers. This neighborhood approach not only helps expand the already established base, but also creates name recognition and loyalty between the consumer and the stores.

The second resource Gamestop must capitalize on is the company’s used video game sales. This unique business plan has been very successful for both the customers and the corporation. Gamestop offers customers the ability to trade-in their old video games for store credit, discounts, or cash. The company then repackages these games and sells them as used video games for a substantial markup, but still cheaper than a new game would cost. Typically, Gamestop makes over 50 percent profit on each used video game sale (Next Gen). This business plan has been so successful that other companies including Blockbuster and Circuit City have been attempting to offer similar services. Used video game sales make up a substantial portion of the entire video game market. In fact, Gamestop has reportedly sold $650 million dollars worth of used video games in 2007 alone. The used video game and trade-in service offered by Gamestop is a substantial piece of the company’s business plan, but is also a valuable resource that allows customers discounts while still allowing the company to make substantial profits.

(Next-Gen)

The third and most important resource Gamestop must utilize is its relationship with game publishers. Although most video game publishers including Sony, Nintendo, and Microsoft are against used sales, Gamestop has maintained a productive relationship with these and other publishers in the industry (Reuters). Gamestop currently sells video games from over forty different publishers and, “generally carries over 1,000 stock keeping units (SKUs) of new video game software at any given time across a range of genres, including Sports, Action, Strategy, Adventure/Role Playing and Simulation” (Reuters). GameStop’s relationship with the industry publishers has also helped the company gain exclusive rights to important aspects of the industry including exclusive distribution of toys, strategy guides, video game reservations, and even game releases (Gamestop – Investor Relations).

Gamestop, along with its resources, also has many capabilities it can utilize for continued growth over the next decade. These capabilities include retail video game sales, used video game sales, movie sales, and accessories (Gamestop.com). Obviously, GameStop’s primary market is video games. The main facility Gamestop uses is its retail video game sales. By working with game publishers, Gamestop provides the largest selection of video games to consumers in any market (Gamestop.com). The second capability of Gamestop is the company’s used video game sales. The details of used video game sales have already been stated as resources, but this resource has become a capability that allows Gamestop to expand and grow its consumer base at an increasing pace. GameStop’s next capability is the recent inclusion of used and new movie sales. By expanding its base past video games and into movies, Gamestop adds another means for profit, while still staying relatively close to the company’s home product line. This will help further expand Gamestop into new markets. The final capability Gamestop can utilize is the sale of accessories. This includes strategy guides, magazines, stuffed animals, toys, and cards. These accessories have become collector items for many customers. By offering added accessories to video game sales, Gamestop can increase its revenue and profits with its normal sales. These Capabilities will enable this company to continue expansion and globalization into new regions and markets over the next decade.