While it would be easy to title this article ‘The rise and fall of GameStop’, it is too early to write that sort of obituary. Much like Blockbuster Video, GameStop was a massive empire that has rapidly shrunk as their chief business model has collapsed thanks to the internet.
Selling video games is great when people have to go into a brick-and-mortar store to buy them, but with the ease of downloading games right onto your video game console replacing that, GameStop appears to be up a certain creek without a particular paddle.
Yet in January of this year, thousands of rookie investors turned the market upside down in a way that no one could have ever predicted (what the next big Wall Street will be is anyone’s guess, since it could be anything from hairdressers to adult entertainment websites because of the sudden popularity of London Escorts reviews.).
Read on to get the lowdown on GameStop’s business model, and where it might go from here.
GameStop began as Babbage’s, a computer retail store in Dallas, Texas in the mid-nineteen eighties. Out of the ‘Video Game Crash’ of 1983, they began selling video games, and thanks in part to Nintendo’s meteoric rise in the late eighties, it was able to go public in 1988.
A few years later, video games accounted for two-thirds of their sales. Mergers and acquisitions followed throughout the nineties, and competition with big-box retailers that also sold similar products created some financial upheaval.
They were still able to operate around one hundred stores after this time of flux, including opening thirty outlets with the name ‘GameStop’, meant to suggest a quick drop in to get the game you want because they were initially placed in strip malls.
To show just how different things were in the late nineties, Babbage’s (as the main company was still called at this time) was bought by Barnes and Noble Booksellers in 1999 for $215 million US.
Since books were still a hot commodity, Barnes and Noble went on a spending spree, buying other video game retailers like FuncoLand, and renamed all their stores ‘GameStop’. Soon everything was retitled, and Barnes and Noble took the GameStop public in 2002.
Initially, they retained control over the company, but over the next few years distributed more and more shares to stakeholders and the general public, eventually making it a completely separate company.
The Golden Age
Video Game sales continued to skyrocket through the early 2000s, first with extremely successful Playstation 2 for hardcore gamers and then with the Nintendo Wii, which brought plenty of casual players into the fold.
During this time GameStop bought EB Games, a video game retailer (that started in electronics, much like Babbage’s) that had stores in Europe and Canada. They even picked up Rhino, another retailer from Blockbuster in 2007.
For the next ten years or so, GameStop would become the biggest name in video game retail simply by buying out the competition across the globe. Even if the naming of these stores remained the same after the takeover, it was all overseen by GameStop, whose monopoly had more pluses than minuses as far as the big three video games companies (Nintendo, Sony’s PlayStation, Microsoft’s Xbox) were concerned. If you were buying a video game in a mall between 2000 and 2015, you were almost certainly buying from ‘GameStop’.
They even got into software and hardware development when they purchased developers Spawn Labs and Impulse in 2011, but as attempts to create an online gaming network did not get off the ground, GameStop quietly closed down these efforts in 2014.
The same fate for the companies that GameStop was involved with – Barnes and Noble, Blockbuster Video – came for them as well.
Saying the internet changed everything is fairly glib, and certainly, in the nineteen-nineties and early 2000s, it could be assumed that what the internet offered could peacefully coexist with GameStop’s stores.
But by the mid-2010s it was clear that times had changed. Streaming movies and tv series as internet bandwidth improved dramatically made renting from Blockbuster irrelevant and buying books online through Amazon (which was their original business model) was cheaper and easier than going to a Barnes and Noble bookstore.
Downloading video games through the online store that the console in your house had immediate access to was too simple to ignore. Even as GameStop attempted to pivot to offering video game accessories (controllers, chargers, title-specific add ons) and memorabilia (t-shirts, posters, figurines), they were also competing against Amazon in the sale of these products.
In 2016, GameStop announced a 16% drop in their holiday sales, typically the time when the company was expected to bring in most of its profits. Not long after, employee-related scandals surfaced, regarding how workers were pressured to up-sell customers and sometimes even lie to them regarding how certain deals worked if they became loyalty members. Whatever goodwill GameStop had in the video game industry quickly evaporated, and online it became something of a joke, a place where you would go to trade-in games you don’t want and maybe buy some figurines for your shelf.
Sales continued to plummet through the next few years, which meant layoffs, store closures, and plenty of restricting to stem the bleeding. The emergence of the Coronavirus Pandemic in early 2020 only made things worse, with stores having to close for indeterminate amounts of time and many customers having no choice but to buy similar products online.
The Short and Short Squeeze
It was in this environment that it became a sensible decision for Wall Street investors to essentially bet against GameStop’s success since it hadn’t had any for nearly five years. But thanks to some interest in Reddit subforums, first-time stock market investors bought up the cheap shares, forcing them to rise 1500% percent in a matter of days and were eventually trading at $483 US at the end of January.
GameStop itself is trying to come out of this with some coins in the coffers, but in terms of what the future of the company will be, we all have to wait and see.