With internet speeds increasing at about 50% per year, downloadable content is becoming more available than ever before. Additionally, many games are releasing at a similar time as their physical counterparts. This has made game makers transition from selling physical copies to digital extras. In 2015, Activision and Electronic Arts cleared $1.6 Billion in digital extras sales. That means GameStop will have less access to this lucrative market in the future.
While the video game industry is hitting record highs, GameStop’s sales have been declining for 10 straight quarters. While last year’s pandemic helped lift overall sales in the video game industry, GameStop’s business has not turned a profit since 2017. As a result, GameStop has changed CEOs five times in the past three years. This includes current CEO George Sherman, who took over in April.
While GameStop is not alone in experiencing a decline in revenue, the video gaming industry is becoming increasingly competitive. Walmart, Target, Best Buy, Amazon, and GameStop all compete for gamers. Because of the increasing competition in the video game industry, GameStop’s revenue has been decreasing since FY15. Not only is GameStop facing reduced foot traffic, but the number of stores has dropped precipitously. The company has also been attempting to reduce costs by shutting down some stores and rebranding others.
In order to continue to thrive, GameStop needs to shift its business model to stay relevant. In addition to switching to a gaming cafe-style store, the company is dependent on trade-ins to generate a profit. The company makes 46% of its revenue from preowned video games. That’s not sustainable in the digital age, and seems doomed to fail. Instead, it should focus on optimizing cash flow and returning it to shareholders as a profit.