Gamestop – Strategic Outlook Full

I’ve gotten a lot of requests for the entire gamestop Stategic Outlook so here it is.  Please dont steal it.  If you reference it, please ask permission first.

 

Strategic Management

Gamestop – Strategic Outlook

Gamestop is currently the largest video game retailer in the world. Globally, Gamestop operates over 5,100 stores and continues to add new stores constantly (Reuters Financial Website). This company also operates two online retail websites called Gamestop.com and EBgames.com. It also owns a leading multi-platform gaming publication called Game Informer. GameStop’s primary function is to sell both new and used video game software, hardware, and accessories from the leading game companies including Microsoft, Nintendo, and Sony. This company also sells PC software, accessories, and other related merchandise including toys, cards, and movies (Reuters Financial Website). This paper explores what Gamestop should do strategically over the next decade; I will argue that the most effective steps for this company to take will be continued national and international expansion, a larger online presence due to increased competition, and a larger focus on the used videogame market.

The main goal of Gamestop is to be the leader in both new and used video game and merchandise sales. The objectives of this company include a “Deeper, Wider, Longer” approach to reach customers (Gamestop – Investor Relations). This is a proprietary strategy Gamestop has implemented to maximize exposure and profit potential from the company’s products.

The Deeper portion of the strategy concentrates on three factors. First, there are seven viable platforms to generate sales. These platforms include, Xbox 360, Playstation 3, Playstation 2, Playstation Portable (PSP), Nintendo Wii, Nintendo DS Lite, and the PC (Gamestop – Investor Relations). The second factor of the deeper approach is the variety of price points available. These price points, which range from $129.99 to $599.99, have been designed to reach a larger number of customers ranging from budget shoppers, to high end customers (Gamestop – Investor Relations). The third portion of the deeper approach is the merging of technologies. More of the systems are becoming interactive with each other, which is allowing cross platform sales to emerge. For example, games designed for the Nintendo Wii can now interact with the Nintendo DS Lite and vice versa. This cross platform interaction opens up further options for increased sales and revenue.

The Second piece of GameStop’s objectives is the wider approach. This approach exists to appeal to the ever expanding video game customer. Over the past decade, there has been a shift in the video game industry from what was once referred to as “hardcore” gamers to include what is not known as “casual” gamers. Gamestop wants to use a wider approach to appeal to casual gamers and hardcore gamers alike.

The Last piece of GameStop’s objectives is the longer approach. This approach deals with the increasing longevity of console cycles. Microsoft and Sony are both increasing the length of time in between console releases from the once standard 3-4 years to 6-10 years. These longer cycles will allow developers to “extract all the power the systems have to offer” over their lifetime, and allow game developers, publishers, and Gamestop to achieve a larger Return on Investment (Gamestop Investment Annual Meeting).

Although Gamestop is currently the leader in the videogame market, Gamestop must be prepared for constantly increasing competition as this market continues to grow. GameStop’s direct competitors include Amazon.com, Best Buy, and Toys R’ Us (Yahoo Finance Website). Gamestop has the advantage of having smaller more centralized stores which can easily be placed in shopping centers throughout neighborhoods, but must compete with the more the popular brand names of Toys R’ Us, and Best Buy. It must also compete with the price discounts available through the online discounts offered by Amazon.com. Other popular retail chains including Wal-Mart, Target, Circuit City, and Fry’s Electronics are also attempting to increase their market share in the industry and trying to directly compete with Gamestop by offering competitive pricing and discounts. Gamestop has used its used videogame sales as a huge advantage against its competitors, by allowing its customers to trade-in their old video games for either a discount on different games or for getting cash back. Gamestop furthers this advantage over its competitors by reselling the games that have been traded in. This allows the company to gain a higher profit margin off of used game sales than new game sales, while being able to offer games at a cheaper price than the competition (Next-Gen Website).

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 7^th 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.

The retail section of the video game industry, due to its rapid expansion, is becoming increasingly competitive. Gamestop enjoys a few competitive advantages over other businesses attempting to penetrate the video game retail industry. These advantages include name recognition, defined relationship with suppliers, and an established business plan which includes reservations and used video game sales. Gamestop emphasizes its concentration on the company’s advantages by stating, “Our disciplined approach to expansion, passion for gaming and superior customer service driven by knowledgeable sales associates, allow us to deliver superior returns and value to shareholders, customers, vendors and employees (Gamestop – 2006 Annual Report.)”

The first advantage Gamestop enjoys is the name recognition the company has established. Gamestop is recognized as the primary video game retailer in the world (Gamestop.com – Investment). Gamestop has established the company’s name recognition through rapid growth and customer service.

Over the past decade, Gamestop has used growth, both in the industry and in the company, to merge and buy out multiple of its competitors including Electronic Boutique, FunCo., and others (Reuters – Gamestop). These mergers and buyouts have allowed Gamestop to eliminate the majority of the company’s neighborhood competitors and have also allowed the company to establish a hold on the smaller niche video game only stores. Along with these buyouts, Gamestop has also rapidly expanded its store numbers by reinvesting profits and cash into new stores (Gamestop – Investor Relations). As previously stated, Gamestop currently has over 5,000 stores. This large number continues to grow at a much larger pace than any of its competitors (Gamestop.com).

Along with rapid expansion, Gamestop has used customer service to establish name recognition which adds to the company’s overall competitive advantage. One of Gamestop’s primary goals is to provide the best customer service available (Gamestop – Investment Relations). By providing great customer service, the company has helped establish the neighborhood mentality of the stores. Gamestop employees are expected to help all customers from the time they enter the store until point of sale. They are also expected to be friendly and courteous at all times (Gamestop.com). These techniques, which are popular in most businesses, are especially beneficial for Gamestop. By being both helpful and friendly, Gamestop’s employees earn loyalty from their customers, which generate further sales. Further, by having smaller stores, Gamestop can use its great customer service techniques to further expand its competitive advantage by making customers feel welcome at any store, not only a customer’s “home store.”

The second competitive advantage Gamestop enjoys is its defined relationship with the company’s suppliers. Gamestop, as previously stated, has a great relationship with over 40 different video game publishers in the industry. These defined relationships have allowed Gamestop the ability to gain certain exclusivities other competitors don’t always enjoy. By working with these publishers and suppliers, Gamestop frequently receives exclusive release dates from developers and publishers. This means that Gamestop will be allowed to sell certain titles before competitors, which further increases loyalty and revenue (Gamestop.com). Gamestop also receives larger amounts of the popular titles than its competitors. This is particularly important when publishers cannot publish enough games to meet current demand. Gamestop often has a substantially larger number of these titles, which makes Gamestop the first choice for customers looking these games. And the last benefit enjoyed by Gamestop and its suppliers is exclusive accessories. Many games include accessories such as toys, plush dolls, strategy guides, etc. Having exclusivity over these products, furthers Gamestop’s advantage as collectors and others will come directly to a Gamestop to find these exclusive and limited accessories (Gamestop.com).

The final competitive advantage Gamestop enjoys is the company’s specialized business plan that concentrates on used video game sales and game reservations. This aspect of the company’s business plan is possibly the most important aspect of the company, both from a consumer and revenue stand point. The first aspect of the business plan important to Gamestops competitive advantage is its used video game sales. As stated, Gamestop makes a substantial portion of the company’s profit through used video game sales. The consumer also benefits greatly from these sales. Customers are allowed to trade in games they no longer play for cash or store credit. They can then use that money to buy other used games or new games. This allows customers to buy games at a much larger discount than they are able to at any other store, while allowing them to get rid of games they no longer play (Gamestop.com). This symbiotic relationship between the customer and Gamestop furthers the company’s competitive advantage by providing its customers a means to buy the latest games without incurring the high cost commonly associated with video games.

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 >

“Gamestop to open 600 new stores” MCV 18 March 2008

<http://www.mcvuk.com/news/29948/GameStop-to-open-600-new-stores>