GameStop has been the biggest retailer of video games for years, but that isn't saving the company from losing business. This has been going on for a while, and it keeps getting hit after hit. An analyst believes that this could be due to the new norm, which is simply buying games digitally.
GameStop's Decline
It's not entirely unprecedented for physical video game stores to start becoming obsolete. Video game distributors and platforms are making it easier to purchase games without having to leave the house, as long as you have the required payment method.
Now that online banking and cash apps are becoming more common, online payment is but a tap away. Due to this convenience, GameStop is losing business faster than it could recover. In an earnings report, the company saw an 80% decline in overall sales.
From a net income of $313.1 million in 2022, GameStop only saw about $6.7 million in 2023. An analyst from WedBush Securities, Michael Pachter, said that the decline can be linked to the rise of e-commerce, as reported by Kotaku.
He explained that the increasing mix of digital downloads is hurting physical retail, given that people have no reason to go to the store if a customer can just order a game online and download it immediately. People can even buy physical copies online as well.
"Revenues are highly unlikely to rebound unless management figures out a way to drive store traffic. I suspect that they will keep trimming costs to generate breakeven or better, but it is inevitable that their sales will decline to an unsustainable level," the analyst continued.
GameStop Conducts More Layoffs
Due to the dip in sales, GameStop is having a difficult time staying afloat amidst the shift in consumer practices. The company's share prices have already dropped, and it doesn't look like customers will be turning back to buying from physical stores any time soon.
As a result, GameStop is laying off more workers, which this time would affect an "unspecified number" of employees. This is in addition to the 3,000 staff that were already laid off last year as part of the company's cost-cutting efforts.
According to Insider Gaming, the company has already pulled out of some markets to regain some losses, but it didn't help all that much as GameStop still sees a year-on-year decline in revenue. Unfortunately for the company, there's not much to do about its physical stores.
One of the ways GameStop can recover is by getting on with the times and building its online retail presence, given that consumers are now preferring digital purchases, or at least buying physical copies online which can be done on retail stores like Amazon.
The situation may seem familiar as the fall of brick and mortar has already happened in a different industry. Blockbuster, once known as the go-to place for renting or purchasing physical copies of content, has gone bankrupt due to the rise of online streaming and subscription services.
