GameStop (NYSE: GME), which has been experiencing a turbulent financial year, has filed a dismal quarterly report showing an increasing financial slump as the company struggles to remain relevant in a rapidly changing industry.
It's well known that GameStop has been in decline for some time, with the company experiencing an unprecedented decline and bleak projections going into next year. Gamestop's Q3 report shows the trend of the company's decline continuing with a 26% decrease in sales. The dreary report caused a 13% drop in the company's share price during premarket trading last Wednesday.
The primary issue plaguing GameStop is the rapidly changing landscape of the gaming industry. The backbone of GameStop is the sale of physical copies of console games as well as the consoles themselves. Unfortunately for the retailer, the sale of consoles and physical games is where the company saw some of the most prominent decline. In terms of losses, new hardware sales (consoles and accessories such as controllers) dropped 46%, new video game sales dropped 33%, and sales of pre-owned games and hardware dropped 13%.
GameStop Chief Executive Officer George Sherman addressed these issues, stating that the catalyst for GameStop's pitiful hardware sales was the announcement of the next generation of gaming consoles; Sony's (NYSE: SNE) PlayStation 5, and Microsoft's (NASDAQ: MSFT) Xbox Series X. According to Sherman, consumers are holding off on new purchases until the release of next-generation consoles. "With console makers set to introduce new and innovative gaming consoles late next year, we anticipate this trend to continue until the fourth quarter of 2020," Sherman said, addressing the trend of decreasing hardware sales.
Sweeping innovations in the gaming industry have long threatened GameStop. For years, the company has been competing with the likes of Valve, which owns the digital distribution platform Steam. Another competitor that recently entered the field is Epic Games, which operates the Epic Games Store, a digital distribution platform like Steam. Digital distribution platforms allow users to bypass the need for physical copies of video games by downloading digital copies directly to their home computers, Steam, in particular, incentivizes purchases by holding constant sales (which consistently coincide with major holidays and shopping events such as Black Friday) and allowing independent studios to publish their works on Steam, affording users a great deal of choice.
GameStop's war with digital distribution and its expected year-long dry spell as consumers wait for the next generation of consoles have investors worried, despite the company's promise to return cash to investors. How GameStop intends to recoup losses during the long year ahead, aside from closing hundreds of stores, remains to be seen.