In what could be the proverbial death knell for video game retailers, GameStop announced that it will be shutting down 2 percent to 3 percent of its retail stores throughout the world this year.
GameStop has 7,500 retail stores around the world and will pull the shutters on 150 of them.
Going forward, the video game retailer will look to channel its attention on its successful ventures. The decision from GameStop comes after the company announced a drop in sales, in nearly all segments, in its fourth quarter report.
GameStop reported a drop of 29.1 percent in its hardware sales and a drop of 19.3 percent in its software retail sales in the fourth quarter that ended Jan. 28, 2017.
The cause of the decline was attributed to the absence of any big game release during the recently-concluded holiday season. The retailer also pointed that its competition were using much more "aggressive console promotions" on Black Friday and Thanksgiving.
What Led To GameStop Sales Decline?
GameStop retails not only new video games, but also used ones. The Texas-based company has been facing the heat from online retailers as consumers gravitate toward online shopping.
Popular titles are available as downloadable content or can be purchased from online retailers such as Amazon, which is more convenient as consumers do not need to visit a game store physically. Everything is available at the click of a mouse, or the swipe of a screen.
The decline in sales does not come as a surprise, as retailers all across the video game industry have been hit by the wave of online shopping. The fact that some consoles have made the games available online directly, make matters worse. For instance, Xbox and PlayStation have online stores from where consumers can directly purchase a particular game.
"Not only are they getting hammered by the online retailers and big box that have an inherent cost advantage through no retail real estate footprint or a much larger footprint that they can leverage with other products, but the movement to mobile-based games is creeping up mightily," noted Larry Perkins, CEO of financial advisory firm SierraConstellation Partners.
The steady decline in sales was also acknowledged by GameStops' CEO Paul Raines.
"The video game category was weak, particularly in the back half of 2016, as the console cycle ages. Looking at 2017, Technology Brands and Collectibles are expected to generate another year of strong growth, and new hardware innovation in the video game category looks promising. As we continue our transformation plan, we will also be focused on managing SG&A spend, rationalizing our global store portfolio, and maximizing free cash flow generation to drive shareholder value," noted Raines.
GameStop announced that it would now shift its attention to more profitable ventures like Spring Mobile, ThinkGeek, and others.
What Are Other Retailers Doing To Counter Online Competition?
GameStop's announcement comes in wake of several other brick-and-mortar stores such as Macy's, JC Penney, Staples, and more pulling the shutters on some outlets. However, some of these stores have adapted themselves to keep pace with online stores.
Several stores have installed self-checkout kiosks and converted the erstwhile store to a distribution site, where they receive online orders. The buyers can collect their orders from these locations with ease.
It is interesting to note that even though the gaming industry is suffering, GameStop witnessed an increase in its collectibles sales. Collectibles refer to video game-related merchandise. GameStop's collectible sales witnessed an increase of 27.8 percent, which was fueled by sales of Pokémon-related toys and clothing.
In the fourth quarter, GameStop added 17 Collectibles stores, which increased the count to 86 stores. This number is inclusive of 24 stores of ThinkGeek in the United States. The company intends to open 35 Collectibles stores, as well as 65 Technology Brand outlets in 2017.
Whether these initiatives from GameStop help the retailer counter sliding revenue remains to be seen.