GameStop positions itself to survive in a growing digital age

In an industry where sales are increasingly going digital, GameStop is at a crossroads. Traditional brick and mortar isn’t going away anytime soon – and used game sales are still a viable force. But day one digital purchase options are becoming more and more frequent on consoles and DLC is one of the fastest growing segments in the industry. To adapt, the retailer has been in the process of pivoting for a while now. And Brad Schliesser, director of digital content for GameStop, says the efforts are paying off. Store clerks, who inform customers about the DLC options at the point of purchase, are helping raise awareness, he says. And a notable number of those customers are being converted to buyers. "What struck us was that 50 percent of the people that were buying DLC from GameStop had never purchased DLC before," says Schliesser. "I always believed if all we did was take customers who were shopping at the Microsoft storefront or the PlayStation storefront and make them our customers, that doesn't benefit the whole. If we were going to be a significant player in the content market, we had to widen the pie." The goal, says Schliesser, is not to convert core gamers, who are already comfortable with purchasing directly from console companies. Instead, the company is hoping to rope in the people who either do not have a credit card or are uncomfortable entering their credit card information onto the systems – which it already reaches through Xbox Live subscription card sales. Buyers tend to favor the Xbox 360 when purchasing DLC from GameStop. Sales for that system account for 65 percent of GameStop’s overall DLC sales, says Schliesser. The PlayStation 3 makes up 28-30 percent. And other devices fill the gap. Those other devices include Steam. Valve’s digital distribution service offers brick and mortar purchases through GameStop – and while it hasn’t been a notable sales driver to date, it is showing promise. "I would say that Steam is gaining in significance," says Schliesser. "We did extremely well in the Steam summer sale. They’ve been a fantastic partner, coming together with an agreement to sell the currency. They've also promoted the currency on their platform. I think they also are seeing the benefit of being able to reach out to customers that aren't able to pay with a credit card." One of the hurdles facing the company today is when customers buy their DLC at the store, they simply receive a code, which they must enter when they get home, then wait for the content to download. That's not exactly a seamless experience. Schliesser says GameStop is painfully aware of this and is already talking with console companies about making the process smoother. Specifically, customers would purchase the content at GameStop; then the retailer (through a secure handshake with the console company) would confirm the transaction had taken place and the DLC would be instantly put into the user’s account. Originally, in fact, that was the plan. "We thought we'd have to have that in place," he says. "Making this a little easier for consumers is the icing on the cake. Our goal on this is 'let's make it a better process for the consumer.' … Our goal in 2013 would be to get one partner to convert to a 'push to box' model." GameStop is betting heavily on its digital future, but the company has seen some hiccups in its growth recently. Our own analyst Matt Matthews has raised questions about whether the company will be able to hit its target of $1.5 billion by the end of its 2014 fiscal year (and notes the company did not reiterate that figure in its most recent earnings call.) Schliesser tempers any fears, saying the company has been "extremely pleased" with the growth rate and is still definitely targeting $1.5 billion. "Our ability to sell the content has expanded dramatically," he says "Two years ago, our attach rate for DLC was 2 percent. On Borderlands 2, we saw an 18 percent attach rate for a $30 season pass." GameStop also expects a pickup in customers with the launch of new consoles – and expects that surge will also be interested in DLC sales. However, he concedes: "If the industry is in a decline, obviously we're not going to outgrow the industry."