Is GameStop Doomed? Retailer Cuts Jobs As Physical Sales Viewed As Unsustainable

GameStop store (angled view)
In a recent 10-K filing with the the Securities and Exchange Commission (SEC), games retailer GameStop said it was putting in place "initiatives to reduce headcount" as part of a "strategic plan to achieve profitability." Separately, GameStop reported $1.79 billion in fourth quarter revenue for its fiscal 2023, compared to $2.23 billion the same quarter a year prior.

The retailer did not specify how many employees it was letting go, only that layoffs are part of a broader plan to cut costs. Incidentally, GameStop also stated in its 10-K filing that the "turnover rate in the retail and fulfillment industries" as a whole is "relatively high," noting an "ongoing need to recruit and train new store and fulfillment associates."

According to the filing, GameStop had 8,000 full-time salaried and hourly associates as of February 3, 2024, along with between 13,000 and 18,000 part-time hourly associates worldwide, the precise number of which fluctuates depending on the time of the year. Last year, GameStop employed 11,000 full-time salaried and hourly workers, and between 14,000 and 27,000 part-time workers.

The challenge that GameStop faces is a market shift towards digital downloads. Today's game consoles still offer disc drives (or game slots, as is the case with the Nintendo Switch), but digital downloads and cloud gaming have dramatically changed the landscape. It wasn't all that long ago when there would be lines outside of GameStop stores ahead of a major game release, but that's something you don't see (or rarely see) anymore.

"An increasing mix of digital downloads is hurting physical retail, and there is simply no reason to go to the store if a consumer can just order a game and download it immediately," Wedbush Securities analyst Michael Pachter told Reuters.

Pachter also said that anticipates GameStopp will continue to cut costs however it can in an effort to at least break even, "but it is inevitably that their sales will decline to an unsustainable level."

It seems that GameStop's long-term viability will depend on its ability to navigate into the digital era and perhaps pivot in some way. This is not impossible, as we saw Netflix evolve from a DVD-by-mail service into a streaming juggernaut. It's not clear what exactly that might consist of, though it's worth noting that GameStop began selling PC gaming hardware, including graphics cards, right around three years ago. There are also game console refreshes looming (PlayStation 5 Pro, for example) that should help the retailer's bottom line.

On the bright side for GameStop, it managed to post net income (profit, basically) of $6.7 million for its fiscal 2023, compared to a net loss of $313.1 million for its previous fiscal year.

Top and Thumbnail Image Source: Mike Mozart (via Flickr, CC BY 2.0 Deed)