Your typical GameStop store, in pretty much any big strip mall in any sizable American city, comprises roughly 1,500 square feet of clutter and chaos. Even on the slowest days, say a Wednesday afternoon when only a single-digit trickle of customers passes through, GameStop overwhelms. Hundreds of games for the major consoles (Xbox, PlayStation, Nintendo Switch) and PCs line the walls. Space marines and Animal Crossing critters and Marios and countless zombies stare out from the covers of shiny plastic boxes. Dozens of Funko collectible figures sit stacked on a counter. Display cases are packed with horror movie villains and sci-fi warriors. There are gaming controllers and virtual-reality headsets seemingly everywhere. As you browse the merchandise, you might ponder whether you’re the sort of person who needs a full-sized Cobra Commander helmet for $119.99. You might wonder who would want a beaten-up box containing a Gregarious Games “Luminart” sign from the movie Ready Player One, even for just $6.95. What you won’t necessarily pick up on is that you’re standing in—at least as far as many media and gaming industry pundits see it—a dying business.
Indeed, Wall Street was aghast when GameStop briefly became the most-talked-about company in the nation last month, as its stock price soared because of a coordinated effort launched in an online forum. Having noticed that there weren’t enough shares of the company’s stock available to cover all the bets institutional investors had made that GameStop’s value would fall—through a strategy called “short selling”—members of the WallStreetBets group on Reddit began buying up shares en masse. The increased demand pushed up the price. Then casual traders looked to cash in on GameStop’s climb, further fueling the stock’s rise. Big investment firms got caught flatfooted and were left scrambling to buy enough shares at the higher and higher prices to meet their obligations. (One firm, Melvin Capital, required a $2.75 billion cash bailout in order to avoid bankruptcy.) GameStop’s stock price skyrocketed from less than $20 to a peak of $483 in just two weeks.
This sudden surge in day trading of GME (the company’s ticker symbol) so overwhelmed many online brokers, including Robin Hood, that for several days they set limits on buying the stock. The national media attention garnered by the GameStop effort had a halo effect on other so-called meme stocks, including BlackBerry, AMC, and Nokia, that were also being hyped on Reddit and in chat rooms where amateur stock analysts gather to discuss how to extract maximal gains from the market. When the inevitable selloff came and GameStop’s stock dropped—back below $50 as of this week—tens of billions of dollars in market value was erased, and many novice investors learned the stock-trading term “bag holding” the hard way. GameStop’s stock price remains much higher than where it began the year, but it’s fallen far from its peak. The effects of this financial roller-coaster ride are still playing out. Just this week, Jason Bell, GameStop’s CFO since 2019, resigned.
Before the stock crash, some folks had good fortune. Among them was Ed Mitchell, a senior software engineer at an Austin health-care company. He invested $1,200 in GameStop at $60 a share, the first time he’d ever bought stock in any company. A week later, he sold ten of his shares for about $325 each, pocketing roughly $3,000. Mitchell’s foray into stock trading had relatively little to do with his faith in the future of GameStop’s business, although he considers himself an avid gamer. Rather, he views his profiting from and continuing to hold stock in the company as his contribution to a movement fighting back against financial inequity. “I think a lot of people, myself included, are still feeling like the system is gaming us,” he said. The rallying call to “hold the line,” to not sell shares and let the institutional investors win, was repeated often across social media during the surge; even rapper and non-financial-analyst Ja Rule advised “DO NOT SELL!”
Yet long before GameStop was conscripted as the poster child for fighting the power, the company was widely viewed as a lumbering, not always well-loved giant. In 2015, it was so dominant that 45 percent of new game software sold worldwide was bought at GameStop. Roughly one quarter of its revenue in recent years has come from used merchandise, mostly as the company bought games from its customers and then sold them to other customers at a significant markup. The feeling one gets from spending $60 on a new video game, selling it for $15, and then seeing it back on a store shelf for $40, made GameStop a villain in the eyes of penny-pinching gamers. Software developers and game publishers also took exception to GameStop’s opportunism in double-dipping on their products without sharing the profits.
Used-game sales aren’t the only problem game developers have had with the GameStop. Mike Wilson, a game-industry veteran who cofounded Austin-based indie publisher Devolver Digital, said that GameStop also had a reputation in the mid-aughts of charging publishers excessive fees for premium shelf space, as much as half a million dollars for a week of a promotional display on the end of an aisle during the holidays.
“They controlled half of the North American games retail, meaning they alone had the power to make or break any release, and took full advantage of that power. They were the worst among a pack of bad actors at retail, and by doing so really helped Steam usher in the digital age for games,” Wilson said, referring to a popular digital games storefront. “It’s quite ironic that this uprising chose GME, as GameStop represents everything that was wrong with retail getting too powerful.”
GameStop’s story isn’t some mom-and-pop, rags-to-riches fairy tale. It’s a far more typical American capitalist story of well-financed corporate mergers and acquisitions. It began with a single store called Babbage’s that opened in 1984 at NorthPark Center in Dallas selling educational and entertainment software. Ross Perot was an early investor, instrumental in getting that first location opened. Founded by two Harvard grads and named for mathematician Charles Babbage, it was a geek mecca long before video games, robotics, and coding were part of mainstream school curricula, as they are now.
Ten years and 319 more stores later, Babbage’s combined with Minnesota-based Software Etc., which had 352 stores at the time, to form the nation’s biggest software retailer. The newly dubbed Babbage’s Etc. moved its company headquarters to the Dallas suburb of Grapevine, where it’s been ever since. In 1996, Barnes & Noble CEO Leonard Riggio bought the company, then sold it to Barnes & Noble for three times what he paid. After swallowing up Funco, another game retailer with about 400 stores, in 2000, the bookstore chain changed the name of all its gaming stores to GameStop. Then came the addition of 1,500 more locations, including 547 overseas, when it bought Electronics Boutique in 2005, a year after GameStop was spun off from Barnes & Noble. At its peak in 2017, GameStop had about 6,600 locations worldwide. That number is closer to 5,500 today, with many more expected to close in 2021.
GameStop super-sized itself into a market behemoth just in time to take advantage of one of the most significant generation shifts ever in video game consoles—the arrival of Microsoft’s Xbox 360 in 2005, followed a year later by Sony’s PlayStation 3 and the Nintendo Wii. GameStop saw its annual revenues rise from $4.3 billion in 2005 to more than $9 billion as recently as 2016.
In 2007, Penny Arcade, one of the web’s most popular online comic strips devoted to the subject of video games, published a scathing strip about GameStop, then approaching the height of its industry power. The strip derisively referred to the company as “a series of upscale pawnshops,” echoing many gamers’ complaints about its markups on used games. In an accompanying blog post, the strip’s coauthor Jerry Holkins described then nascent online stores for downloading games—such as Steam, Xbox Games Store, and PlayStation Network—as the “first chapter of a story that ends poorly for GameStop.” He argued that the retailer’s prime revenue stream—selling physical discs and cartridges—would soon be made obsolete by these faster, better ways of purchasing the same games.
Fast-forward to 2021, and fewer than 17 percent of games sold today are physical copies, despite the rows and rows of boxed games on display at Target, Best Buy, and other retailers in addition to GameStop. This shift echoes the end of the compact-disc music era and the transformation of the video rental market. For years, GameStop has promised investors it would bolster its own digital business, but that has never fully materialized. Its digital storefront primarily sells codes to unlock store credits or downloadable bonus content, not really competing with Steam or Sony or Nintendo or Microsoft’s more robust online marketplaces. That failure to capitalize on digital sales, and a drop in annual revenue from $8.2 billion in 2019 to $6.4 billion in 2020, led to much speculation that GameStop is doomed.
In the lead-up to the Reddit-powered stock surge, institutional investors targeted the company as a failing brick-and-mortar business that would never recover, especially last year when the COVID-19 pandemic kept gamers from retail locations and consequently pushed even more into buying digitally. (Video-game sales overall rose about 23 percent during 2020’s pandemic.) An earlier 2019 effort by GameStop to sell itself failed, which had also contributed to the perception that the company was bound to go the way of Blockbuster Video.
Yet some financial analysts, including Michael Pachter of Wedbush Securities, say that GameStop has actually weathered the digital transition better than the music and video industries, primarily because the market for used games has remained stronger than those for used CDs or DVDs. “The good news for GameStop is they created the used video-game market, and they have a category of customer that absolutely values the trade-in. They look at a new game as a $20 bill they can trade in later,” Pachter said.
GameStop had a surprising increase in retail holiday sales for 2020 over the year before, despite temporary store closures. Much of that was a result of new consoles, the Xbox Series X and PlayStation 5, debuting late in the year. GameStop also saw a 309 percent increase in its digital revenue, though it remains a tiny player in that realm. And there’s been plentiful speculation that leadership changes announced early in 2021—namely the hiring of Amazon veteran Matt Francis as chief technology officer and the addition of Ryan Cohen, cofounder of the successful pets e-commerce company Chewy, to the board of directors—could help steer the company in a more digitally savvy direction.
Still, Pachter worries that GameStop may miss an opportunity to further improve its situation by issuing new shares of GME to pull in cash before the price falls even further back toward where it began the year. At least so far, however, GameStop has been hamstrung on that front. While the company filed to sell $100 million worth of shares last December, it hasn’t been able to, Reuters reported, because the company hasn’t yet reported earnings on the last quarter to investors and the Securities and Exchange Commission, a legal requirement before making such a stock offering. It’s already missed out on the potential to raise hundreds of millions of dollars at the peak of the stock surge.
“I keep thinking the company is going to issue stock, but they haven’t done so yet,” Pachter said. “I think they owe it to their long-term shareholders—to pay down debt and get out of any potential for ever going bankrupt and to build up their cash reserves to implement the right strategies.”
What those strategies should be, however, isn’t clear, and so far GameStop has not publicly laid out a vision for its future. Company spokespeople declined multiple requests for interviews for this story and remained silent throughout the stock surge. A marketer who has worked directly with GameStop and asked not to be named because of those business dealings, said e-sports and reworking the retail footprint for stores are now its major priorities.
“They’re looking at ways to engage casual gamers, to tie virtual worlds to physical stores, and to get into e-sports. They’re also looking to build local hubs for games, places where they can come together,” the marketer said. This model could emulate the kinds of gaming lounges popular in countries such as China and South Korea and that are beginning to pop up in the U.S.
That approach to business could be less about selling games than about renting time on high-powered gaming machines or selling food and drinks and membership perks to groups of players. It would require myriad adjustments and perhaps a total image makeover for GameStop. Yet the pre-pandemic success of gaming conventions has demonstrated that gamers like to gather IRL (in real life), despite stereotypes to the contrary. It’s true that a lot of gamer socializing takes place remotely, on gaming headsets, but there’s a lot to be said for face-to-face geeking out.
A recent visit to a GameStop store in north San Antonio, one of about 357 the company operates in Texas, gave me reason to believe a remaking of GameStop as gathering spot might work. As I was browsing the shelves, an employee called out, “What are you into?”
“Excuse me?” I responded
“What are you into? What games do you play?” he asked.
This sort of interaction is common at GameStop. The managers and workers invariably play lots of video games themselves. They talk about games all day. They read blogs about games. They are trained to chat with and inform customers about the games they play.
William, the store associate, and I ended up talking, through our face masks, for about a half-hour. We discussed the glitching wagons and whether you can rob trains in the game Red Dead Online, which Call of Duty has the best “Zombies mode,” whether Final Fantasy XIV is worth returning to again and again, why gaming PCs cost so much, and whether Apex Legends is better than Warzone. The conversation turned briefly to the stock surge. William bought GameStop shares at $9 and under $50 and sold it all for a $1,203 profit.
But stock talk gets boring fast. Instead, we returned to gaming: the no-no’s in PlayerUnknown’s Battlegrounds and whether “battle royale” games in general have peaked. It’s the kind of conversation that makes me want to race home and fire up my PlayStation 4.
The talk went on for so long that I forgot that the reason that I walked into GameStop was to check in firsthand on the state of the company’s stores, to glance around and scribble some details for this story. I was trying to figure out why everyone thinks a chain with locations in seemingly every city—where shoppers still walk through the doors regularly to play game demos, to trade in, to talk about, and to buy games—isn’t long for this world. Even if GameStop is dying, there’s going to be a long deathbed scene.