Cover Story: Winning a New Way
In the eight-plus years that Paul Raines has been at GameStop — the first two as COO, the last six as CEO — he’s been witness to a rapidly evolving company (and retail industry, for that matter). When he first arrived at GameStop in 2008, the company was a video game retailer. And those games were primarily sold in GameStop’s brick-and-mortar stores.
After a strategic review, a new approach was deemed necessary to insulate GameStop from a softening video game market while positioning the business for future growth.
Eight years and several acquisitions later, the transformation of GameStop from a video game-only retailer to a family of specialty retail brands is well underway. The company has invested in a host of new categories, including consumer electronics, mobile phones and collectible products. And Raines would have it no other way — both on an individual and companywide basis.
“I believe having the courage to re-invent myself every now and then has helped me in advancing my career,” says Raines. “This is advice that I provide GameStop associates and young business professionals all the time.”
GameStop’s transformation efforts are paying off nicely. The retailer saw record gross profit and net income in 2015, and in its most recent fiscal quarter, more than half of GameStop’s operating earnings were generated via nonphysical gaming categories.
Acquisitions Lead to Diversified Business
In 2009, Raines and the other members of GameStop’s executive team started a strategic review of the company. The rate of external and cyclical change taking place all around GameStop and its core business at the time — the sale of physical video games — necessitated diversification. That has been accomplished primarily through acquisition.
GameStop launched its technology brands segment in 2013 with the acquisitions of Spring Mobile, a retailer of AT&T-branded wireless services, and Simply Mac, the largest certified reseller of Apple products. It also entered into a strategic agreement later that year with Cricket Wireless, an AT&T subsidiary offering noncontract wireless service. To date, GameStop counts 1,566 stores in its tech brands segment, making it the No. 1 AT&T Wireless and No. 1 Apple authorized retailers in North America.
In addition to the technology brands segment of the business, GameStop has extended its reach into the collectibles marketplace. In 2015, GameStop acquired GeekNet, parent company of ThinkGeek, a multichannel retailer of toys and collectibles. GameStop recently opened 10 new physical collectibles stores, bringing its total in that category to 47.
Lastly, GameStop entered into the growing indie video game category this year with the introduction of its GameTrust business division. The retailer published its first indie game — Song of the Deep — in July, and it has already sold more than 120,000 units along with branded merchandise in conjunction with its release.
These new business units are powering GameStop’s growth. In this year’s second quarter, revenues for the tech brands unit grew nearly 55 percent to $175.9 million, and are expected to deliver between $85 million to $100 million in operating earnings in fiscal 2016. And in the collectibles business — GameStop’s fastest-growing segment — second-quarter sales increased nearly 120 percent, and are on track to deliver $450 million to $500 million in sales in 2016.
“Our growth as a company is being driven by our entry into new categories beyond physical video games,” Raines notes. “Video games will always be an important business at GameStop, but our future growth depends upon our ability to succeed in other new businesses as well.
“When we say transformation, we’re talking about evolving from a video game-only business to a diversified company that has multiple billion-dollar businesses in other categories as well,” Raines adds. “For example, within three years, our business outside video games will be larger than our business within video games.”
Building Long-Term Relationships
One of the first initiatives that Raines was a part of implementing at GameStop was the development of the retailer’s loyalty program, PowerUp Rewards. The program now boasts 49 million active members, and yields two tangible benefits: loyal customers that buy more frequently than nonmembers, and a rich source of data. That data is shared across the organization, including with the retailer’s 40,000 global store associates.
That sharing of data across departments and systems enables GameStop to provide a better shopping experience for its customers, regardless of the channel they choose to engage the brand in. For example, if the retailer knows that a customer is a fan of Pokémon through their purchase data captured within the PowerUp Rewards program, it can market other Pokémon games directly to them, along with a variety of other similar-themed merchandise or collectibles that can help extend their connection with their favorite video game franchise.
“PowerUp Rewards allows us to take the same passion and relationship we have with our customers in our brick-and-mortar stores into the digital ecosystem through sophisticated CRM technology to provide our customers with relevant offers and information,” says Raines. “The insights we gain through the PowerUp Rewards loyalty program also enables us to enhance our overall marketing initiatives and strategies, ensuring we drive promotional offers we know our customers want and expect to receive. PowerUp Rewards and the relationship with our customers is the foundation of the GameStop business.”
Merging Online, Offline
While Raines is quick to note that GameStop’s brick-and-mortar stores remain the core channel in which customers prefer to engage the brand in, the retailer hasn’t been immune to shifts in consumer behavior that have forced traditional retailers to re-evaluate their business models. Consider that two-thirds of GameStop’s customers visit its website within 48 hours of visiting one of its stores, according to Raines.
Developing GameStop’s omnichannel business through the integration of technology is a priority for Raines. Some steps have already been taken in this direction — e.g., web in-store; buy online, pick up in-store; ship from store — and more are to come.
“[Omnichannel] allows us to engage customers by morphing our stores to reflect the environments where they spend their time shopping and purchasing, whether from a smartphone, tablet or inside one of our stores,” Raines says. “We know our entire omnichannel ecosystem begins with the strong engagement that we drive in our physical stores. We extend this engagement into our digital/online presence. Through a strong social media presence, our websites and our PowerUp Rewards loyalty program, we’re supplementing our close customer relationships.”
Credit to the Team
Humility is one of Raines’ greatest strengths. He attributes his career success to the smart people he’s worked with that are committed to winning. And he believes the more than 40,000 knowledgeable and passionate GameStop associates around the world are responsible for the retailer’s success.
A global brand, GameStop has implemented a diversity and inclusion strategy to help it attract a talented, multicultural and multigenerational workforce to better serve its ever-evolving customer base. Raines lists driving talent development at an aggressive pace as one of his biggest challenges in leading the company. He knows GameStop’s greatest asset is its people.
“Our global workforce is diverse and the key ingredient to GameStop’s success and growth,” notes Raines. “It starts with our knowledgeable store associates, who are committed to delivering exceptional service to our customers. They’re the secret sauce in driving customer engagement and success.
“Furthermore, the GameStop senior executive leadership team is one of the most tenured leadership teams in the retail industry,” Raines adds. “Each of them is focused on driving the expansion of their business, while at the same time exploring new opportunities to build our future through diversifying our business.”
While Raines is quick to credit the efforts of others in the success of GameStop, he should take pride in the fact that his leadership and vision are inspiring those around him. It’s now about building upon the foundation he’s helped create.