GameStop Increases Profits Through Brand Diversity

In an industry that saw a 15 percent drop in physical retail sales in 2015, one brand continues to grow profits. For the third year in a row, GameStop profits per store increased. The electronics retailer reported profits of $176,000 per store, on average, or nearly 15 percent for each of its more than 6,600 retail locations. This increase is attributable in large respect to the brand’s transformation from an exclusively brick-and-mortar gaming retailer to a diversified brand with both physical and digital components.

Today, three-quarters of GameStop's gross profit comes from video-gaming products. By 2019, Jason Cochran, senior vice president of U.S. stores for GameStop, predicts more than 50 percent of the retailer's operating budget will come from sales of nonvideo gaming products. How will that happen? GameStop plans to diversify itself by expanding into four businesses — technology, collectibles, digital/mobile and, of course, gaming.

About two years ago, GameStop acquired Spring Mobile, an AT&T wireless retailer. In addition, GameStop previously purchased Simply Mac, an authorized retailer and repairer of Apple products. These acquisitions have provided the foundation for GameStop's digital/mobile initiatives.

“At that time, Spring Mobile had just under 100 stores and Simply Mac was right around a dozen locations,” says Cochran. “We've grown, between Spring Mobile and Simply Mac, to over 1,000 locations by virtue of either acquisitions within the AT&T brands, new doors we've opened or, in some cases, converted GameStop stores to Spring Mobile AT&T stores because we might have had two locations of a GameStop within one mile of each other.”

GameStop views mobile technology as a $200 billion market in the U.S. And with its partnership with tech giant AT&T, GameStop is able to sell Cricket Wireless’ prepaid mobile services within 3,500 of its stores.

“What’s great about that is our customers are able to use trades for currency to pay for their mobile services,” Cochran notes.

Trade-ins are very popular among GameStop customers. Cochran reports that trade-ins added up to $1.1 billion in credit for customers, and 75 percent of that was put towards the purchase of new products.

New Market Opportunities
GameStop acquired mobile game publisher and web platform company Kongregate in 2010. This acquisition set up GameStop to sell downloadable content and full game downloads, helping to generate over $1 billion in digital revenue for the retailer.

“As we look at addressable markets in digital, which is $8 billion in the U.S., we see a lot of good runaway for us there," says Cochran. "We're relaying our bets on technology.”

And that’s not the only market GameStop is relying on for future growth. Cochran says he forecasts collectibles — e.g., coffee mugs, apparel or statues from games, movies or TV shows — as a $500 million category for GameStop in 2016, and predicts that will double by 2019.

ThinkGeek, acquired by GameStop last year, has more abstract collectors items like USB chargers and toasters. Cochran says GameStop acquired ThinkGeek in part for its license availability, which is needed to create more of these unique products. ThinkGeek specializes in e-commerce, but GameStop wanted to test physical locations for the brand, so it's opening the first three independent ThinkGeek stores in Florida, New York and Texas.

“We found huge success in terms of our expectations and brand embracement from customers … anywhere from 70 [percent] to 80 percent of our customers that walk through the ThinkGeek branded stores are very familiar with the brand and are in awe that the products are there to tangibly touch vs. admire on a monitor or phone,” says Cochran.

Brick-and-mortar stores have been key to GameStop’s success. Cochran says 95 percent of the company’s $1 billion in digital revenue was purchased within the four walls of a GameStop store. In addition, GameStop's store associates are proving to be a boon to the company's bottom line.

“I have to give our people a lot of credit," Cochran says. "We have the most knowledgeable group of associates who run and work in our stores, and they take epic pride in delivering on service and taking care of customer needs.”

2015 yielded a record year for GameStop for net income, profitability and gross margin. Let’s see if this diversification leads to another record-breaking year.