Is GameStop the Next RadioShack?
The death of RadioShack was a long time coming. Seemingly every year the company didn’t go bankrupt was a surprise, at least since 2005, when market forces and shifting consumer behavior sent the company spinning through CEOs at a breakneck pace (six in ten years). The writing on the wall was clear: if one-time retail behemoths like Borders, Blockbuster, and Circuit City can’t compete with online retailers, how on earth could there still be a friggin’ RadioShack?
The answer, we know now, was always “There can’t.” Everything you might have bought at RadioShack in 1991, as one blogger noted in early 2014, has been replaced by a phone you already have in your pocket. And the company’s efforts to reestablish ties to hobbyists and makers wasn’t going to save it when you consider that the items RadioShack sells are all available online at a lower price. RadioShack’s advantage—that you can get its wares immediately—isn’t exactly a strong business model when your target audience is tinkerers.
All of that is obvious now, of course, and while we’ll miss RadioShack for nostalgia’s sake, the company’s death didn’t make any customer’s life harder. It did, however, open up some retail space for another Texas-based chain that sells a popular consumer product: last month, Grapevine-based GameStop announced that it would be leasing 163 of the shuttered RadioShack locations.
GameStop Corp may sharply increase the number of its Spring Mobile stores after the company bid on Wednesday for the right to take 163 leases over from electronics retailer RadioShack Corp, which filed for bankruptcy this month.
The agreement allows GameStop to decide in about two months if it will take on the obligation of the RadioShack leases or terminate the lease, according to a filing in the U.S. Bankruptcy Court in Wilmington, Delaware.
The video game retailer said it had agreed to pay $15,000 for each RadioShack store lease.
Those Spring Mobile stores (not to be confused with Sprint stores, which are also moving in to some RadioShack locations) are part of GameStop’s attempt to not become the RadioShack of 2019, or whatever year consumer behavior and online competition would force them into bankruptcy too.
Dallas Morning News business columnist Mitchell Schnurman explained why GameStop is opening stores with a different brand identity and a different mission, one “dedicated to bringing you the best in mobile devices, plans, and accessories”:
For GameStop, it’s a way to add incremental revenue and profits. It’s also part of a diversification plan to counter a deep decline in the video game business—and the threat of digital disruption down the road.
GameStop entered this specialty in late 2013, when it bought Spring. The reseller had 90 stores in September 2013, and it now has over 360, after GameStop ramped up acquisitions and new openings. The RadioShack leases, which cost $15,000 each, will accelerate the push.
GameStop also has about 60 Simply Mac stores, an authorized reseller for Apple products. And it owns about 63 Cricket stores, which sell prepaid wireless service, again for AT&T. Those efforts ramped up about the same time as Spring
Sales from Spring, Simply Mac, and Cricket stores account for a small portion of GameStop’s annual revenue, about $216 million of a $9.5 billion enterprise. That percentage may continue to grow, but it’ll be worth examing whether that happens because that market remains lucrative, or because the video game retailing business is doomed.
In other words: GameStop Corporation might endure as a company holding a variety of low-margin electronics retailers—phones for people who don’t want to buy one online, used Macs for people who don’t trust eBay but can’t afford to buy new direct from Apple, prepaid smartphones for people with bad credit, etc.—but GameStop as a brand faces more long-term challenges.
For one, GameStop is deeply unpopular with many consumers who make up its target market, offering famously low trade-in prices for the used games that make up much of its reason to exist. Competitors like Walmart and Amazon, meanwhile, have begun to offer their own version of that same service at competitive prices. But even more dangerous to GameStop’s bottom line is the question, Why waste gas and time buying a plastic disc for your console when you can download—or eventually stream—the same thing immediately?
That might be why GameStop is now among the most-shorted stocks on the S&P index, and why corporate death-watch speculators have had their eye on the company for the past few years (2014 holiday revenue was down 6.7 percent from the previous year). None of these changes are new, but if the company is putting its name in headlines alongside the words “RadioShack,” it’s hard not to compare the two.
Still, GameStop has been declared dead before and is still chugging along. Last year, Bloomberg explained why reports of its death have been exaggerated, pointing to the new focus on phones and the untested technology behind streaming games. But as the latter gets its kinks worked out—Sony’s PlayStation Now streaming service is more effective in its Beta run than most observers had guessed—the company’s reliance on the former makes a lot more sense. GameStop will be around for a while in its current form, but if GameStop Corporation wants to avoid being the next RadioShack, diversifying its hustle makes a lot of sense.