During a Q3 earnings call yesterday, GameStop CEO George Sherman announced that the company will now be winding down its operations in the Nordic region of Europe over the next few months. Specifically this process of winding down will affect Finland, Norway, Denmark, and Sweden, and is expected to reach completion by late 2020.
Sherman explained that this winding down is part of the company’s efforts to optimise their global fleet of stores. This process is also designed to revitalise GameStop given the recent continued slump in sales since they posted a $673 million full-year loss in 2018, which hasn’t shown any signs of slowing.
During the Q3 earnings call Sherman added that GameStops expectations for year-on-year sales loss have been lowered to between five and ten percent, rather than somewhere in the high-teens.
According to Sherman, part of the reason for the company’s continued slump in sales is due to the need for restructuring, but also in part due to where we currently are in the console lifecycle, with the current generation ending in anticipation of the new one next year. He went on to say that with the next generation of consoles on the horizon, consumers are actively waiting until they release before they purchase new hardware or software.
A recent NPD report showed double-digit declines in new hardware sales for both September and October. Sherman says that this is a decrease that GameStop is feeling quite acutely as an industry leader. He said that he expects this trend to continue until the PlayStation 5 and Project Scarlett release, especially with a lack of discounts on current generation hardware, and an earlier than usual next-generation console announcement.
In their last financial call prior to this one, GameStop revealed that around 180 to 200 underperforming stores would be closed before the end of 2019, with even more planned for the following 12 to 24 months. In today’s earnings call the revised projection for store closures is between 250 and 300 locations closed by the end of 2019, with 140 closures already complete.
GameStop has already made some considered efforts to improve its profitability over the last couple of years. This year alone saw multiple layoffs for employees throughout the company, as well as the absorption of the ThinkGeek brand into the wider GameStop brand.
There is also a strategy currently underway to specialise twelve GameStop stores for certain concepts like retro gaming. Sherman claimed that these initial twelve stores throughout Tulsa, Oklahoma have already been reinvented, and there are more on the way for consumers elsewhere.
Most of these changes are being implemented within GameStop as part of their plan to revitalise the company and improve profit margins, something that Sherman says is already happening.
The projected profit improvement goal is $200 million, half of which is reportedly going to come from expenses reductions, with the other half coming from product margin enhancements. Most of the expenses reductions look to have come in the form of layoffs at the cost of around fourteen percent of staff.
Sherman ended the financial call by telling investors to evaluate the company not by comparing it to other retailers this year, but by viewing how they transition between the current and next console generation. He explained that the enhancements that will be seen should demonstrate how well the company will perform moving forward with this new generation. Areas of note that should be watched include gross margin expansion across categories, strong discipline in inventory management, the ability to generate strong cash flows, and delivering expansion on cash flow and operating profit.