News hasn’t been great for gaming retailers lately. You only need to look at GameStop as of late. Nearly four years ago, they purchased Think Geek and they were recently looking for a buyer. With Sony no longer offering digital codes through retailers, it seems that GameStop is the future of gaming retailers. However, the reason isn’t because of inflated prices. The reason they are hurting is something the gaming industry once considered a hindrance to their bottom line.
Gamestop is the future of gaming retailers simple because it just announced its worst annual performance in decades, raising renewed questions about the health of the physical video game market as downloadable games continue to rise. Net sales for GameStop were down 3 percent for the 52-week period ending February 2, a slide that helped flip last year’s modest $34.7 million profit to a sizable $673 million operating loss. On top of that, the company expects sales to decline another 5 to 10 percent in the next fiscal year.
While that is huge, the reason behind the new loss is alarming. While hardware sales were roughly flat and new software sales fell about 4 percent year over year, pre-owned software sales cratered nearly 12 percent for the year, continuing a years-long slide.
GameStop has always relied on the high margins of buying low and selling high on used game discs to buoy an otherwise low-margin business. “We continue to see declines in pre-owned software, reflecting the decline in sales of new physical games and the increasing demand for digitally offered products,” GameStop COO & CFO Robert Lloyd said in an earnings call.
Gaming retailers may be hitting a similar tipping point as players increasingly just download the games and content they want. EA has been making a majority of its money from digital sales since 2013 and has been planning to become a “100 percent digital company” for even longer than that. And in 2017, Activision revealed that a majority of early console sales for Destiny 2 came from digital downloads and not retail discs, setting “a new high-water mark” for the company.
Not to mention, services like PlayStation Plus and Xbox Games with Gold are offering monthly free games to their subscribers, many gamers don’t have an incentive to purchase used games when they can wait for a free game. In addition to Microsoft and Sony usually offering some great bundle deals, gamers are more inclined to wait for a deal than buy a game on day one.
Unfortunately, like book stores and music stores, this is the way of the world. As we move into a more digital age, with lower consumer costs, retailers that thrive on high-margins will bear the brunt of the changing market. However, people that have done business with GameStop know that they weren’t the best company to deal with. It was simply all they have. GameStop always treated their customers as sheep and now it seems like payback is a bitch.