Is This the End of Days for GameStop?
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Editor's Note: Since this article was written, it has been confirmed that GameStop is looking for a buyer. In a press release, it said it "is in exploratory discussions with third parties." It said these talks do not mean there will or won't be any sale, then continues to note that it will make an announcement if anything happens to merit one.

Original Story:

Mention GameStop to any video game fan and you’ll get a response fueled by mixed feelings. Most people think of years of dealing with annoying sales attempts for all the things GameStop has to sell to make money, since just selling video games isn’t enough to stay in business. This has grown more true over the years, as digital sales and online retailers have made selling brand new, physical games a worse business venture. From pushing used game sales, magazines, memberships, low trade values, and pre-orders, there’s some bad juju with GameStop. At the same time, very few alternatives exist, and the people who do like to buy physical games and walking into specialized retail stores enjoy having the store around. But things aren’t so great behind the scenes.

As reported recently by Reuters, GameStop might be up for sale. According to the report, private equity firms have been expressing interest in a purchase, and GameStop has hired a financial expert to look over the whole situation while the company considers it. There’s no guarantee it will end up selling, but the rumors here are already having a positive impact on GameStop’s stock price, which has gone up as much as 11% since the news broke. That’s a huge deal, as stock has been a big problem for the company over the last several years.

At GameStop’s peak in 2007, the company’s market capitalization was around $9.4 billion. But stock has dropped over 32 percent and that capitalization is down to $1.42 billion. This has a lot to do with the stuff I mentioned earlier – online sales, digital sales, and low profit margins on brand new games. Plus, even the used game market is being undercut, thanks to programs like Xbox Game Pass and EA Access, which give cheap access to older titles, often cheaper than buying used titles individually. As we’ve all seen, GameStop has taken to getting into merchandise and collectables as a result, acquiring ThinkGeek and selling things like apparel and figurines in stores.

Could GameStop be in danger of closing down? As long as GameStop can stay adaptable, I doubt it. In fact, I’m worried about GameStop being purchased by equity firms. That stuff is risky. Just look at what happened with Toys R Us. The running narrative with the once-beloved toy retailer shutting down is similar to what’s on display here – pseudo monopoly Amazon and other online retailers eating the lunch of everyone else. But that’s only a piece of the puzzle. Toys R Us sold to investing firms, which then offloaded the debt of that very purchase back onto the company. Toys R Us made plenty of money, but couldn’t realistically pay off the debt and interest. It was impossible, and the investors who made that purchase don’t get to face consequences for that reckless behavior.

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I’m worried about the same thing happening to GameStop. Not that I’m worried about the well-being of a giant corporation on principle, but I do worry about people losing their jobs because of investors gambling with peoples’ livelihoods. I’m worried about something that does have value to people into gaming going away for crappy reasons. GameStop shuts down because it just isn’t sustainable? Not much you can do about it. But if it sinks because of some firm doing something shady in a gamble to make more money than will ever be feasible? That’s a problem that stretches far beyond video game sales.

For the most part, this news won’t have much of an impact on video game-buying customers anytime soon. Perhaps GameStop, if it is purchased, sees significant changes to one or more of its business models. Maybe it tries to get into the streaming market somehow, or ends up coming up with more incentives to get people into stores. Or maybe a firm buys it and bleeds the company dry with interest payments until its sad husk is forced to close and lay everyone off. Only time will tell.

Lucas White
Lucas White

Writing Team Lead
Date: 06/21/2018

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