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GameStop holds the top score in video game retailing. The largest retailer of new and used games, hardware, entertainment software, and accessories boasts roughly 4,000 GameStop, EB Games, and Micromania branded stores in the US and 2,000-plus stores in Europe, Australia, and Canada. Its stores and e-commerce websites stock more than 6,000 video game related items, with more than half of its sales coming from new video game hardware and software. GameStop also sells downloadable add-on content from publishers, operates 1,300 smartphone retail locations under the AT&T, Cricket Wireless, Simply Mac, and Spring Mobile banners (which it is selling), and publishes video game magazine Game Informer.Operations. By product, GameStop generates almost 30% of its total sales from new video game software, while more than 25% of sales came from pre-owned and value video game products and software. The rest of its sales came from new video game hardware sales (roughly 15% of sales), video game accessories (almost 10%), and Technology Brands (10%), among other sources. Beyond its stores, GameStop operates more than a dozen e-commerce sites.The company is selling its smartphone retail business, which includes about 1,300 AT&T wireless stores, to retailer Prime Communications for $700 million.Geographic ReachGameStop has a presence in 14 countries worldwide, including 10 European countries, North America, and the Asia Pacific region. About 65% of its sales come from the US, while Europe generates 15%.Sales and MarketingGameStop considers itself a destination location for gamers.
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It develops relationships with video game enthusiasts through its PowerUp Rewards loyalty program by allowing US consumers to trade in used video games for store credits on future purchases in its stores, on its US website, and on Kongregate.com.Its PowerUp Rewards program provides members with the opportunity to earn unique video game related rewards not available through any other retailer. Vendors also participate in this program to increase the sales of their individual products. It also has loyalty programs in France, Italy, Germany, Australia, and Spain. Altogether, its various loyalty programs total more than 46 million members.GameStop uses in-store marketing efforts like window displays and signs to attract customers and promote its products. Inside stores, it features selected products through the use of vendor displays, or preview videos, signs, catalogs, point-of-purchase materials, and end-cap displays. These advertising efforts are designed to increase the initial sales of new titles.Financial PerformanceGameStop's revenues declined 8% from $9.4 billion in 2016 to $8.6 billion in 2017.
This was due to a decrease in comparable store sales of 11% compared to the prior year.The decrease in comparable store sales in 2017 was primarily the result of a 28% decrease in sales of video game hardware and a 14% drop in software sales. Hardware suffered from a reduction in selling price of certain models as the console cycle for popular products (such as the PlayStation 4 or Xbox One) matures.
Software sales dipped due to weaker new title releases in 2017.These decreases were partially offset by a 52% surge in Technology Brands sales and a 60% spike in collectibles sales as a result of the company's diversification efforts.Like its revenues, GameStop's profits also fell 12% from $403 million in 2016 to $353 million in 2017. This was due to higher selling, general, and administrative expenses affiliated with the expansion of its Technology Brands business. GameStop's bottom line was also affected by impairment losses of $34 million.GameStop's operating cash flow has fluctuated wildly over the years; after increasing to $657 million in 2016, cash flow decreased to $537 million in 2017. This was largely due to the profit decrease combined with a decrease in cash provided by changes in operating assets and liabilities of almost $100 million, primarily from the timing of payments for income taxes and accounts payable.StrategyIn light of slumping retail sales, GameStop has been trying to grow its business through video games that are delivered to users in digital form and from the expansion of other forms of gaming. Products that relate to the digital category, including Xbox Live, PlayStation, and Nintendo network points cards, as well as prepaid digital and online timecards and digitally downloadable software.To this end, the company continues to investment in e-commerce, digital delivery systems, mobile applications, online video game aggregation, and in-store and website functionality.
It also plans to invest in these processes and channels to grow its digital sales base and boost its market leadership position in the electronic game industry and in the digital aggregation and distribution category.In addition, GameStop's used video game products have lured more frugal customers who want to stay in the game even with tighter budgets in the years following the last recession. That bodes well for GameStop, as used game products carry higher-profit margins, and represents the company's most profitable product segment. However, GameStop has faced new competition from Wal-Mart Stores, which allows customers to trade in used video games for store credit at most of its stores. Best Buy and Target also buy used video games from customers.In 2017 the company announced a subscription service called PowerPass, which allows customers to borrow used physical games for up to six months for yearly fee. The move is another effort by GameStop to diversify its revenue stream as more consumers eschew physical games for digital downloads.In 2018 it announced plans to divest its network of some 1,300 AT&T wireless retail outlets (which it had been growing since 2013) to focus more on core game operations and pay down debt.