Crafting a Sustainable Future for GameStop Amid a Changing Gaming Landscape
Discover how GameStop can navigate a challenging gaming industry through strategic changes such as store mergers, downsizing, and focusing on e-sport gaming lounges. Explore recommendations, analysis, and alternatives to ensure GameStop's relevance and profitability in the digital era.
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Presentation Transcript
A Sustainable Future for GameStop Genevieve Roch, Akshay Joshi, Rachel Simmons & Paul Bugnon JMSBConsulting
Agenda 1)Recommendation 2)Analysis 3)Alternatives 4)Implementation 5)Financials
How can GameStop stay afloat in a dramatically changing gaming landscape? Continuous decline in profits Poor digital presence Late entry to digital Fierce competition Low retail traffic
Recommendation Analysis Alternatives Implementation Financials Merger: giving digital gaming a physical footprint Close 1,500 stores Downsize by 750 central employees Optimize offering and operations in remaining locations Reduce store footprint Transform 200 hub stores into modern e-sport gaming lounges Host local e-sport tournaments at new hubs Focus on sales of collectibles, accessories and e-sport merchandise Pivot store function Leverage publication to build subscriber base Segment PowerUp Rewards data and implement A/B testing marketing Partner with e-sport celebrities to generate more e-Sport content on Game Informer Competitions with social-media based entry for events and prizes Leverage current assets to become an attractive partner for digital gaming publishers
Recommendation Analysis Alternatives Implementation Financials Retail and digital industries are filled with goliaths Physical Digital Walmart $123B EA, Amazon, Ubisoft, GameStop Target $75B Best Buy $42B Valve GameStop $8B GameStop is late to the game with little to compete with
Recommendation Analysis Alternatives Implementation Financials Declining retail traffic drastically hurts core business Gaming industry shifted to online 5830 locations become irrevelant Mall closures GameStop must quickly and strategically address this
Recommendation Analysis Alternatives Implementation Financials Gaming industry shifting to a full experience Gaming communities Tips, tricks Tournaments & Events Bloggers, Hype Gaming
Recommendation Analysis Alternatives Implementation Financials Gaming industry shifting to a full experience Game Informer Gaming communities Tips, tricks Physical locations Tournaments & Events Bloggers, Hype Gaming GameStop can leverage it s capacities to complete the experience
Recommendation Analysis Alternatives Implementation Financials Merging is last option Renovated location showcasing experience Uniquely online gaming publishers Game Informer with strong following GameStop must act quickly
Recommendation Analysis Alternatives Implementation Financials Current Operating income Adjusted 2018 operational income: $268.7M -38% Goodwill impairment: $970.7M Last year has positive income & cash flow, but is going down
Recommendation Analysis Alternatives Implementation Financials Current store contribution margin Gross margin per store: $0.395M/store Saving required per closure: $0.18M in overhead 50% of overhead is attributed to head office & outside store expenses Current stores still have value, and closure must be strategic to reduce overhead
Recommendation Analysis Alternatives Implementation Financials Game Stop market value Current value: $5/share 102.1M share Future cash flow value: $510.5M Discount rate: 8% $510.5M GameStop needs to give its current shareholder $510.5M
Recommendation Analysis Alternatives Implementation Financials Game Informer value Subscribers: 2.1M Digital 4.5M Paper Current valuation: $417.6M Digital 60$/year 80% GM Paper 96$/year 50% GM 2 year lifetime value 1 year lifetime value Game Informer has great current market value
Recommendation Analysis Alternatives Implementation Financials Success Criteria Company Declining sales, margins and stock price Reduced store traffic New management Comapny Industry Gaming software sales shifting to online-only Gaming hardware market still strong eSports and new ways of experiencing games (AR, VR) becoming increasingly more popular GameStop Competition Industry Competition Unable to compete with retail giants on sales/sq. ft. Low presence online as a game publisher platform No presence on online streaming platfoms GameStop needs to address changing industry landscape and increasing competition as it plans for future
Recommendation Analysis Alternatives Implementation Financials Best plan for GameStop Acquire a game publisher or streaming platform Pivot to an online streaming and eSports platform Downsize the current business Sell entire business Merge with a game publisher Financial Capacity Industry Trends Potential Stock Price Increase Time Required Merging with a game publisher will maximize shareholder value by capitalizing on industry trends
Recommendation Analysis Alternatives Implementation Financials Risks RISK MITIGATION CONTINGENCY Likelihood Impact Downsize and focus on publication Sell assets for shareholder dividends Unable to secure a merger LOW HIGH New stores do not generate sustainable revenues Spend more on marketing and influencers Downsize further MED LOW
Recommendation Analysis Alternatives Implementation Financials Timeline at a glance 2020 2021 (Merger) Close 1,500 underperforming stores Optimize remaining locations Reduce Footprint Downsize 750 employees (central) 80 store transformations 60 store transformations 60 store transformations New company valuation Pivot Function E-sports tournaments and events Hire 2 data- analysts PowerUp Segmentation A/B testing Build digital subscribers Hire e-Sports content producers Social Media push
Recommendation Analysis Alternatives Implementation Financials Rethinking the footprint Stores in closing malls 2000 lease expiries Underperforming locations Close 100 US, 100 International Large cities & high-traffic areas Transform 20 California 10 each: Illinois, Ohio, Florida, Virginia 20 Canada 30 Australia & NZ 50 Europe 20 New York 20 Texas
Recommendation Analysis Alternatives Implementation Financials Trim the fat from existing operations Cut 750 employees (central: accounting, purchasing, procurement and operations) Optimize product offerings and displays in-store Reduce inventory of physical games and other underselling items
Recommendation Analysis Alternatives Implementation Financials New store layout Huge display screens Huge display screens Space for events and tournaments Virtual Reality and Augmented Reality game-play areas ($$) New revenue streams Collectibles Display Seating with small consoles and screens ($) Better display of collectibles and expensive SKUs Modern design (black w/ colorful accents) Merchandise, accessories, cash and check out Entry / Exit
Recommendation Analysis Alternatives Implementation Financials Boost social media following PowerUp Segmentation Highly attractive and engaged customer base E-Sports content 2 data-analysts to segment data and develop marketing insights Social Media Campaigns E-sport celebrities to review games Competitions and events on Live Digital publication extras available on YouTube channels A/B testing with product sales and foot traffic at events Prizes and giveaways for social media followers Features to attract younger demographics # Leverage expertise of Hamelin and Bell
Recommendation Analysis Alternatives Implementation Financials Post-merger: GameStop s future Gaming of the future: interactive relationships with an engaged community of fans Digital Game Publisher: GameStop: - Capitol to continue transformation - Physical footprint - Game Informer Publication - Exclusive sales of their games - Engaged and active customer base - Reach and audience for larger events
Recommendation Analysis Alternatives Implementation Financials Plan financing Source of funds: Cash flow after dividend $143M/year Use of funds: $90M Current cash flow can be use to improve valuation for merger
Recommendation Analysis Alternatives Implementation Financials Budget breakdown 100 9.37 89.87 90 22.5 80 70 3 60 5 10 50 40 40 30 20 10 0 E-sport Data & analytics firing expenses Gaming lounge Social media campain Store imparament total Cost mainly driver by closure and new Gaming lounge
Recommendation Analysis Alternatives Implementation Financials Financial projection (Traditional store) 6050 305 6000 300 300 5950 5900 295 5850 Revenue Profit 5800 290 Value of traditional store: $855M 6000 5750 285 285 5700 5650 280 5700 5600 3x EBITDA 5550 275 2020 2021 Revenue Profit Optimized traditional operation has great value
Recommendation Analysis Alternatives Implementation Financials Typical Gaming lounge store 6% 21% Contribution margin per store: 0.6M/store 15% 2% 11% Value of new store: $300M 27% 18% Hardware Software Re-sell Accessories Digital E-sport Others Gaming lounge has great value and key for target merger
Recommendation Analysis Alternatives Implementation Financials Asset valuation for merger $500M Game Informer 5$ customer acquisition costs 1M more subscribers $300M Gaming lounge value $800M Excess cash on balance sheet from last year sales $855M Future cash flow from remaining operation Merger valuation after plan creates value in excess of $1.9B
Recommendation Analysis Alternatives Implementation Financials Merger: giving digital gaming a physical footprint Close 1,500 stores Downsize by 750 central employees Optimize offering and operations in remaining locations Reduce store footprint Return of assets: 3.8x Transform 200 hub stores into modern e-sport gaming lounges Host local e-sport tournaments at new hubs Focus on sales of collectibles, accessories and e-sport merchandise Pivot store function Leverage publication to build subscriber base Segment PowerUp Rewards data and implement A/B testing marketing Partner with e-sport celebrities to generate more e-Sport content on Game Informer Competitions with social-media based entry for events and prizes Leverage current assets to become an attractive partner for digital gaming publishers
