How could GameStop’s demise have been prevented?
GameStop’s story is a cautionary tale of what happens when companies try to resist change instead of making the hard decision of pivoting.
It is nothing new that for some years now GameStop’s business has been steadily declining mainly due to the rising trend of gamers buying digital copies of video games.
Record companies went through this when people began downloading music digitally, so it was just a matter of time that this phenomenon caught up with the gaming industry.
This slow-burn crisis led to GameStop’s shares being valued in single digits by the end of 2020. Several hedge funds identified GameStop’s situation as an opportunity to make a profit out of the demise of the company by short-selling their positions.
The rest is history… a group of redditers organized themselves to stop the hedge funds’ scheme by buying a lot of GameStop’s stock increasing their value to the point were short-sellers losses top 70 billion USD.
This story is still being written.
For the moment it looks like the people will win but while we watch and wait for the final score, we thought it would be interesting to analyze how did GameStop came to be in this situation.
THE PERFECT STORM
Just as the meteorologist in the 2000 film The Perfect Storm said “Once it starts no force on Earth can stop it…”, referring to the accumulation of disastrous weather phenomenons that ended with the lives of the Andrea Gail crew, by the end of 2020 GameStop’s situation looked a lot like the image above.
Exactly what phenomenons formed this perfect storm? Here’s a few of them:
People stoped going to malls
Even before the pandemic, malls were seeing dips in their year over year count of visitors. Many architects, designers, innovators, etc. have been trying to reinvent shopping malls in their effort to attract people.
The rise of the digital format
Each year more and more gamers have transitioned to download digital copies of their favorite games. Last holiday season saw Call of Duty: Black Ops Cold War sell 5.7 million digital copies.
End of console cycle
2020 marked the end of the life cycle for both PS4 and Xbox One consoles. Usually this represents fewer sales for games and consoles in general as customers prepare for the launch of new products.
Pandemic
To top it all, COVID 19 made GameStop close all of their 3500 stores across the US from March to May 2020. Top executives received big cuts to their salaries in an effort to make their losses less severe but still the company reported losses of 169 million USDs in Q2.
WAS THERE EVER HOPE FOR GAMESTOP?
Without a doubt, there have been efforts to guide GameStop out of the storm. In 2019 they tried redesigning some of their stores into concept stores focused on competitive and retro gaming.
Leadership has also been changed, incorporating Reggie Fils-Aimé, former president of Nintendo of America, to their board in an effort to refresh ideas.
Nevertheless, it seems that GameStop will join the long list of dinosaur companies that have been left behind by the evolution of their industries. Just as Kodak and Blockbuster before, GameStop knew the writings were on the wall but still tried to fight the storm.
The main takeaway from this story should be (apart from fearing redditors) that a hard and painful pivot is better than a long and slow agony.
There are various stories of companies and brands that have successfully pivoted before and during the pandemic. Some have used their current capabilities to produce new products and services, while others have decided to invest in the development of new capabilities.
Whatever the chosen path, it should lead to new products and business models that cater to customers with needs not yet satisfied by the current offerings in the market.
This may seem an impossible task for traditional companies but more and more organizations have seen the benefits of practicing innovation. It may take longer than most companies are willing to wait but patience and discipline are the best partners when developing innovation.
The Andrea Gail, as GameStop, overstayed her welcome and paid the ultimate price when caught by the perfect storm. Companies need to learn how to read the weather signs and be wise enough to know when to steer the boat in search of new waters, even if that means letting an easy catch get away.
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