GameStop holds the top score in the video game retailing industry. Operating under the GameStop, EB Games, and Micromania banners, it's the largest retailer of new and used games, hardware, entertainment software, and accessories. It boasts about 6,700 stores in the US, Europe, Australia, and Canada. By carrying about 4,500 items, including 1,000 new video game titles, a majority of GameStop's revenue is generated by sales of new and used video games and their software. The firm also sells downloadable add-on content from publishers. GameStop operates e-commerce websites, offers GameStop TV in many of its locations, and publishes Game Informer, a video game magazine that reaches some 5.7 million subscribers.
Despite the gloomy selling forecast for retailers during the past few years, GameStop has logged its greatest revenue increases among its used video game products as the company was able to lure more frugal customers during the recession. Sales rose for used items from 23% of 2009 revenue to 26% in 2011. More consumers were turning to existing video game products, rather than new, due to their availability and cost-effectiveness. That bodes well for GameStop, because used game products is the company's most profitable segment; its profit margins for used games is 47%.
Those gamers who jockey for the latest and greatest video game software still chose to shop at GameStop, which brought in another 42% of its 2011 revenue from new video game software. GameStop saw slight sales declines, however, among its lower-margin new video game hardware product segment (21% in 2009 to 18% in 2011). The firm points to lower consumer demand and price cuts on hardware consoles for the sales slips. The sales decline on new hardware wasn't detrimental to GameStop, though, as the products generate about a 7% profit margin for the game chain.
GameStop has continued to expand its operations in the US and overseas, but most of its recent sales growth has come from outside the US. In Europe the company logged an increase in revenue that offset sales declines in the US related to decreased demand. Significantly boosting its store count overseas has allowed GameStop to maintain its overall store growth strategy. While other retailers' growth plans stood still during the recession, GameStop in 2010 added more than 220 stores to its operations -- 107 in the US, 88 in Europe, 17 in Australia, and eight in Canada. This is modest growth for GameStop, which opened 674 new stores in 2008, 586 stores during 2007, and 421 stores in 2006. Just a few years ago, GameStop was a much smaller game in town. The company's purchase of rival Electronics Boutique in 2005 doubled GameStop's size.
To maintain its foothold in new and used gaming, GameStop plans to continue targeting hardcore gamers as well as those niche customers who purchase games as gifts during the holidays. The company considers itself a destination location for gamers. It develops a relationship with video game enthusiasts by allowing them to trade in used video games for store credits on future purchases.
GameStop is also looking to the Web's game space for growth. In early 2011 the company acquired Spawn Labs, which develops peer-to-peer game streaming technology, so gamers can access their video games and play with others (via an Internet-connected device) even when they are away from home. Spawn Labs sells its streaming applications to game developers. The business is being integrated into GameStop's research and development unit, as Spawn Labs' expertise in virtualization is key to strengthening the retailer's online gaming offerings. Also in 2011 GameStop acquired the Impulse subsidiary of software firm Stardock Systems, whose online distribution platform enables gamers to purchase and download games to their computers. Impulse offers more than 1,100 games, a number that is sure to grow with Spawn Labs on board. Prior to these deals, GameStop secured a digital platform in mid-2010 when it acquired Kongregate, a gaming site launched in 2007 for social gaming that attracts some 10 million users a month. As part of the purchase, Kongregate operates as a wholly owned subsidiary of GameStop and maintains its headquarters in San Francisco. The unit aims to continue growing its capabilities and operations in order to reach a wider audience.
To further attract gamers and keep them in GameStop stores longer to boost same-store sales, the company in 2009 completed a yearlong launch of an in-store video network called GameStop TV. The effort is the result of a partnership with CBS Outernet and Reflect Systems. The in-store programming features product promotions, game previews, developer interviews, and other customized content, as well as advertising targeted to a key demographic -- males between 18 and 34 years old -- that GameStop offers.
A raft of promotions among the firm's top management affirmed the board's satisfaction with the direction of the company. In mid-2010 Daniel DeMatteo was named executive chairman of GameStop, while Paul Raines was promoted from COO to CEO of the retailer. The firm also promoted its EVP of merchandising and marketing to president, a newly created position at GameStop.