Gamestop – company overview part 4

24 Jul 2008

here is is.. the final part of my overview -

The final aspect of the business plan pertaining to competitive advantage is the company’s ability to provide video game reservations. Game reservations allow customers to pay a portion or all of the cost of a video game before the game is released, which guarantees that they will be able to get the game the first day it is available. This small but important tactic allows Gamestop to make sales on video games before they are released, and estimate the number of games needed when they become available. This allows the company to maximize profits and inventory of video games and also lets both Gamestop and publishers estimate demand for future titles before they are released. These competitive advantages including name recognition, defined relationship with suppliers, and an established business plan, have allowed Gamestop to establish a current and future competitive advantage that will continue to expand as long as the company sticks to its plans for expansion and continues its remarkable customer service.

Gamestop has multiple strategies that encourage growth in the industry by relying on the company’s competitive advantages. Gamestop separates the company’s strategies into a customer strategy and an expansion strategy (Gamestop – Investor relations). This separation of strategies allows the company to focus on both customer loyalty and rapid expansion at the same time. By separating these equally important strategies, the company can diversify its focuses and meet the needs of both its customers and the company’s stockholders. Further, these separate strategies let retail stores maintain a certain amount of individuality while letting headquarters concentrate on expansion (Gamestop – Investor Relations).

The customer strategy Gamestop has implemented is a proprietary strategy the company calls the “Deeper, Wider, and Longer” approach (Gamestop – Investor Relations). This strategy was designed to meet customers current and future needs, and has already been discussed in great detail. Along with the “Deeper, Wider, Longer” approach, Gamestop puts a very large emphasis on customer service and employee training. In fact, Gamestop’s official stance is that,

“there is something distinctive about GameStop that goes beyond our merchandise and our stores, and it’s our people. Our employees make us the nation’s premier video game and entertainment software retailer-and diversity is a key to that equation.
At GameStop, we strive to understand, accept and celebrate differences in thought and experience that shape the work environment. We hold a commitment to diversity as it makes our company better and the communities we serve stronger (Gamestop – Investor Relations).”

This emphasis on employees and customer service establishes the customer strategy that Gamestop has designed to increase its customer base and loyalty.

The second strategy Gamestop incorporates is the expansion strategy. This strategy focuses on the expansion and growth of its stores. Gamestop has been rapidly expanding its store base both in the United States and Internationally for the last five years (Reuters). The company focuses on smaller stores, established in communities, to expand its consumer base. The company chose to focus on these smaller stores instead of larger stores to concentrate on the niche markets video games entail. This strategy has turned out to be a great success and has actually pushed Gamestop to the top of the Fortune 500 in terms of the fastest growing retailer in America (MCV – Gamestop). Gamestop plans to continue this strategy into the future. During 2007, Gamestop opened 586 new stores globally. In 2008, Gamestop plans to open over 600 new stores, “in the more developed video game markets of the US, Canada and Australia, as well as building new stores in virtually all of the more immature markets across Europe (MCV – Gamestop).”

Gamestop International Store Openings

These strategies together have created the quintessential “well oiled machine.” Using these strategies, Gamestop has pushed itself to the forefront in the video game industry and the retail industry in general. In fact, “Its full-year financials for the fiscal year 2007 include net earnings of $288.3 million – an increase of 82.1 per cent compared to 2006 (MCV – Gamestop).” This is a substantial increase for any company, but is completely unheard of in the niche market video games encompass. These earnings, along with expansion, are proof that Gamestops strategies are successful. This success allows the company to reinvest its earnings back into the company, allowing further expansion. The company also estimates continued success even with the current uncertainty of the American economy. The CEO of Gamestop, Richard Fontaine, is quoted as saying, “Prospects for the 600 new store openings in 2008 look very promising even with the current concerns about the US economy (MCV – Gamestop).” This outlook has given customers and stockholders continued faith in Gamestop. As long as continued growth in terms of profits and stores continues, there is no reason whatsoever for Gamestop to modify its current two strategy system.

The retail video game industry has had many changes and technological developments both in the products and the distribution of games. In order for Gamestop to maintain its competitive advantages, the company must continue its strategies that continuously expand and implement these rapidly changing technologies.

The videogame industry is very cyclical. Typically, videogame consoles have a lifecycle between 5 and 7 years. These cycles, frequently referred to as generations, are maintained predominantly by the “Big Three” console makers, Microsoft, Nintendo, and Sony (Gamestop – Investor Relations. Gamestop has implemented a two-tier approach to handle these cycles). Many gamers, in anticipation of the new console releases, purchase fewer games for their current generation systems. Gamestop allows its customers to trade in their current generation console and games for store credit and a discount on the Next-Gen console. Gamestop then resells these products to its lower end customers and keeps its high end customer coming back for Next-Gen titles (Next-Gen). As previously stated, Gamestop creates enormous margins on its used video game sales. By doing this, Gamestop continues to push its sales of current generation products, while hardcore gamers are waiting for the Next-Gen consoles and games to arrive. Further, although the Next-Gen consoles are released relatively near the same time, their releases are frequently staggered up to a year. This cycle saw the Microsoft Xbox 360 released almost a complete year before the Nintendo Wii and Sony Playstation 3. This staggered release of new technologies also allows Gamestop to generate more sales. Many customers have a preferred system, but will frequently purchase multiple systems. Reasons for this include these staggered release dates and video games that are exclusive to each console.

Along with video game cycles, Gamestop also uses and implements technological developments in other facets of its business. Gamestop has implemented and integrated its website into one of the premiere websites available. Gamestop currently has a page ranking of 993 (Alexa – Gamestop). This ranking means that Gamestop.com is the 993^rd most popular website on the internet. Further, according to Alexa, Gamestop has a daily reach of over 800 million hits a day.

Gamestop.com Daily Reach

Gamestop uses its integrated website as one of its main technological forces against the competition. Gamestop.com is a website designed to both give information and generate sales. The company posts news and information about upcoming games and products on Gamestop.com. This allows customers to easily access information without having to leave their house. Gamestop also sells new and used video games directly from its online store. This feature encourages customers to easily log on and place orders without having to travel to purchase new products. The company also includes local store information online, including lists of stores by proximity and maps. Gamestop also lets customers look up products online and see an estimate of how many copies of a game are available at their local store. Customers can then call and confirm before purchasing products (Gamestop.com).

Another technological advantage Gamestop uses against its competitors is the fact that the company allows its customers to play almost every game the company sells in the store before the customer purchases it. This allows the customer to sample the game and figure out if they really like it before wasting money on it. Each Gamestop store keeps at least one console from each company hooked up at all times to encourage customers to come in and demo both new and used games. This further increases the company’s advantage over its competitors, but also helps build a reputation and loyalty with customers.

These technological advantages including the console cycles, integrated website, and in store video games, has given Gamestop a technological competitive advantage over the other companies in the industry. While Gamestop currently has the competitive advantage, the company must continue to utilize and expand these technologies in order to maintain that advantage.

Gamestop has many tools and strategies that have helped the company become the premiere video game retailer in the world. The company’s diligence and organization have helped push both national and global expansion even with economic uncertainty. As long as Gamestop maintains its strategies and methods, the company should expect continued growth and expansion for years to come. These strategies including the “Deeper, Wider, Longer” approach, debt minimization, and concentration on used video game sales, should remain the cornerstone of the corporation as it continues its growth.

Works Cited

“Gamestop Corp GME (NYSE) Full Description.” Reuters Financial Stock Information.

3 Feb. 2008. <http://stocks.us.reuters.com/stocks/fullDescription.asp?rpc=66&symbol=GME.>

“Gamestop Financial 2007 Annual Meeting of Stock holders” Gamestop Investor Relations.

5 Feb 2008. May, 2007. <http://www.gamestop.com/investor-relations/ >

“Best Buy Co Inc (BBY) Full Description” Reuters Financial Stock Information

3 March, 2007. 19 Feb 2008. <http://stocks.us.reuters.com/stocks/fullDescription.asp?symbol=BBY>

Matthews, Matt. “By the numbers: Used Games Revisited. Matt Matthews” Next- Gen.

5 Feb 2008.

<http://next-gen.biz/index.php?option=com_content&task=view&id=8697&Itemid=2>

“Gamestop Corp. (GME).” Yahoo Finance. 5 Feb 2008.

< http://finance.yahoo.com/q/co?s=GME >