Interview: The State Of GameStop

Earlier this month, major gaming retailer GameStop conducted the finals of a nationwide Super Smash Bros. Brawl tournament at its recently-renovated "tournament store" in San Jose, California. The retailer is incredibly important to the success of the game industry in North America - as recently revealed, it saw sales increase by 33 percent to a record $7.1 billion for the 12 months ending February 2008. GameStop also projecting sales growth of between 19 to 21 percent for the 2008 fiscal year ending February 2009, and it now operates over 5,000 retail stores across the United States - and in fifteen international countries, where it is expanding rapidly. During the event, GameStop's divisional vice president of corporate communications, Chris Olivera, sat down with Gamasutra to touch on a wide variety of topics. Topics discussed include the new tournament concept and other in-store marketing efforts, GameStop's worldwide expansion and absorption of other retail chains, and the company's assets beyond its brick and mortar stores. Putting on a Show I guess the first thing I want to talk about is, you're doing these tournaments. You said you're doing these tournaments for most major game releases. Chris Olivera: Correct. We actually do them on a fairly regular basis, maybe five or six per year. This is the first time, though, we've used this particular store in San Jose - the GameStop Tournament Center, as it is - as the finals and a laddering-up event to launch. So this is a little bit different than in the past. How many stores might be involved in the very bottom rungs of a tournament, and how does it...? CO: Actually, most of our tournaments involve anywhere between 2,500 and up to 3,000 stores, for any one particular launch. In this particular case, it was a smaller number. It was about 2,500 stores total that participated. So in the end, it'll be something like maybe 60,000 people across the country, when it starts at a local store, say in Norman, Oklahoma, making it all the way here to San Jose. And this is the finals of this tournament? CO: This is the finals of the tournament, correct. And I can tell from the inside of the store that it was recently redone as a tournament store, with that big stage in the back and everything. CO: Absolutely. So is that a concept that you're going to be rolling out? CO: Yeah. Our management, our field manager as well as our real estate folks and our senior chain are seeing to explore, "Does this concept work here? What does it look like? What would we look like if we did it in other cities?" As you know, a lot of our stores are in the 1,500 to 2,000 square foot range, so doing something like this is a little bit different for us, but obviously, a lot of people are excited about it. We've had a lot of really positive feedback from the quote-unquote "tournament center," as opposed to just a traditional format store. Keeping people coming into the stores as things like digital distribution take off, is that kind of one of the thoughts behind this? CO: No, actually. Hardcore and core gamers are always coming to our store anyway. This is basically a new way to get brand-new casual gamers and even gift-givers into the store. It's a new, unique way of sparking and getting into, as that landscape expands, some new things we can do. This is probably on the same level as what we do on holiday periods, where we actually have a greeter in our stores helping moms and casual gamers understand what's new, what are all these systems about, and about different types of genres. So this is just a different idea, but in the same vein. It's looking at the landscape of our customers in a broader way. Rethinking Presentation At [last year's Gamasutra-covered] GameStop Expo, there was discussion about how some stores might be merchandised in the future differently. Concepts like having a kids' section, or having a casual section, or something like that. Is that something that's still in progress? CO: That's still in place, actually. Since holiday '07, we did put in a family section and a music section in most of our stores, as well as of course our PC section, which is really important to us and a lot of our customers. So yes, those sections still exist, and we're looking at other possible new sections within the store as possibilities for our winter '08. The sections you're describing are more like media-based sections. Traditionally, GameStop would be broken up by platform, like Wii, 360, and PS3, right? But some of the sections that were discussed were more conceptual, to bring in a different kind of consumer and make a different kind of consumer feel more comfortable, or easy to identify games that they might be interested in. Theoretically, a casual section would have Wii games in it, or PC games next to each other. I don't want to say what you might do, but you see what I'm saying. CO: Yeah, I see what you're saying. Actually, there's also on the boards and in some locations currently sections that are specifically for girls and women, and games that appeal to that particular audience. You're right. It's something that certainly evolves over time. And with our square foot-sized stores, it allows for a lot of flexibility. We don't have to have huge amounts of space. We can actually turn things around and respond to what's going on within the community. When you're building a section like that, would you change the aesthetics of it, to differentiate it from the rest of the store? CO: Yeah. This store is a little bit different, as you've noticed. There's those red wings differentiating those different areas. That's something that our visual merchandising folks are investigating, just different ways of calling it out for the consumer to see, whether it's a girl or a female gamer area, a music section, or family entertainment. It makes it much more obvious when you walk into the store, because right now, you currently walk in and there's games from floor to ceiling. That's a constant process for us, learning how consumers are shopping our stores and ways we can make it better. I was at the one that's in Valley Fair mall, which is right around here. We were looking for the Nyko Wii Recharging Station, and it was hanging by the ceiling. They had to pull it down with a hook. And I don't mind having to ask people, and this isn't a condemnation, but I was just like, "That's kind of weird," because it's a small store. CO: It's a small store. And sometimes at the small stores, the managers have to be very creative in putting the merchandise up on the walls. Part of it is to make sure it's there and people see it, and since this is a new experience, they have to be pulled down in a unique way. So yeah, it's simply a reaction to... It's a challenge. CO: A challenge. Yeah, you're right. Centralizing the Brand One thing I was interested in was that that store was still an EB. It's still an Electronics Boutique. CO: That's correct. And I know there were plans to phase out EB. I think FuncoLand has been completely phased out as a brand. CO: Correct. I know that went away pretty fast. Software Etc., phased out. Babbage's, phased out. GameStop, of course, persists, but it still seems there are some EBs around. CO: That's still going to be in certain markets and will continue, and that's due to lease restrictions. Lease restrictions is basically the core of it, where we can't change out signs, or we have to maintain our current lease. Once that expires, we can renegotiate. So that's at the core of it. For the most part, probably 90 percent of our stores have been rebranded where they can be rebranded. But you'll see that. You may even see, in a particular mall, two GameStop stores. Again, that's just because combining the two companies takes time. So it's not strategic at all, in terms of you keeping some EBs or something. CO: No. Exactly. The only EBs that will exist in North America will specifically be in Canada. Does it have a brand history in Canada? CO: It has an incredible brand history in Canada, and Canadians love their EB Games, so for now, we'll just continue it that way. But as you look at our stores in Europe and outside of North America, they're all branded GameStop. Things changed so much over the past ten years. I list off all these stores that used to exist over the last ten years. I used to comparison shop between Babbages and EB in the same mall, and now they're both GameStop. CO: Exactly. GameStop has had some incredible growth, and a lot of it has been through acquisition. There's also been a lot of good organic growth. It's a good combination, and when you have over 4,000 stores in North America alone, yeah, we're a very large specialty retailer, and it's a very exciting industry to be linked to. In addition, GameStop just acquired in Europe, right? CO: Yes, we did. We purchased all the Free Record Shops that were in Norway, specifically. Free Record, for your background reference, still exists in other Scandinavian countries. We've only purchased Free Record Shops located in Norway. That's an interestingly small target, I guess. I don't know how many stores that would be, but I would guess... CO: It was roughly 50, and it fits into our longer term goal. In 2008, we hope to open between 550 to 600 new stores, and that's part of that. It's 50 of that larger number. Over the next few months, our management will be converting those record shops and that traffic into gaming locations. Do you feel like this is sort of the frontier for you guys, European expansion? CO: It really is. This is a question that often comes up during our earnings calls, what we see in the future as a possibility. Certainly, Europe, with its incredible population and the interest in gaming there, we see that as an incredible market to investigate and to grow into. I know there's been some speculation as to whether you guys might acquire GAME in the UK, but I don't think there have been any moves. CO: Yeah, there have been no moves. I don't know if you've been to the UK and been to a GAME store... CO: I have. They're so reminiscent of GameStop, at least the ones I went to in Guildford and London. They're not exactly the same, but they were as similar to a GameStop as an EB was to a FuncoLand was to a Babbages. That's what I think. CO: Oh really? The couple I've been into were recently overhauled, so they were a tad different. They may have been concept stores I was seeing. So yeah, two stores is hard to base a complete opinion on. It's interesting. It's, "Where can you go?" right? Because at a certain point, the U.S. market will probably become saturated with GameStops. I did a store search because I was trying to find the address for this one, and I came up with eight in a 10-mile radius or something. That strikes me as probably pushing... at least for San Jose and Silicon Valley, you're probably approaching the saturation point. CO: That's something that's constantly being investigated, whether it's San Jose or Houston or Chicago or other metro areas. We're constantly re-evaluating our locations, just as any other retailer would. What we do... again, in 2008 specifically, 550 to 600 new stores opening, half of them being here in North America. And the rest opening in? CO: Opening predominantly in Europe and Australia. Did you guys have a presence in Australia before [the EB Games acquisition]? CO: We did not. Beyond Brick and Mortar You recently relaunched the website. One thing that I was happy about is that you can use the [loyalty-based] Edge card now to make purchases online, which I'm sure you got a lot of requests for. CO: We got a lot of positive feedback from customers calling in through customer service. They're very pleased with that new feature. Again, with anything new, there's kinks to be worked out, but the idea behind it is that we want to give the same level of customer service that people have come to expect when they come into a store. We want that to be the parallel online. I guess the redesign was a little bit overdue, but it can be difficult to launch a project. CO: It is. And when you bring two companies together the size that we were, there were some obstacles, of course. But the website is much more functional. The other big feature is the ability to give wish lists. It can be transmitted to non-gamers, parents, etcetera, to prod them into things that you want for your birthday, your bar mitzvah, or your upcoming whatever. It's just another nice feature. Again, it's things that just make the online shopping experience more enjoyable. Something I'm interested in is that there's been a lot of discussion about used games and how that impacts the industry and how publishers feel about that. As I understand it, you've done some studies saying that most people who trade in games go on to buy a new game. That's essentially the argument that's used to discuss with publishers. CO: Exactly. In fact, last year, worldwide, GameStop put basically over $700 million worth of trade currency back into consumers' hands so that they could purchase a new product. What's interesting is that new game sales have gone up recently. Statistics have come out recently that new game sales are growing faster than used game sales at GameStop? CO: That's probably something I can't really comment on. Sorry about that. Something that also interests me is that obviously [GameStop-owned game magazine] Game Informer is still persisting and doing well. CO: Yeah, it's a wonderful book. It actually has a great following. They get some wonderful exclusives, and our associates use it as a tool to help gamers and non-gamers alike understand what's out there. And of course it's linked to our Edge card, so there's a lot of value in it on the consumer side, but also as a company, it's a wonderful vehicle for us. It's a good magazine, but it's a very traditional, core gamer-oriented magazine. As you pull in new consumers, have you thought about addressing those consumers in that similar way? CO: I'm not certain. I would actually have to check on that. I have not had that conversation with Cathy Preston, who is the publisher of that. Editorially, they are completely separate from us, and they are physically distanced from us. They're in Minneapolis, and we're in Dallas. I guess I've always wondered how you look at Game Informer as an investment, because it's not cheap to publish millions of copies of a magazine each month and mail them out across the country. Anyone who works in publishing knows that. Do you view the benefit as that it helps educate your consumers and gets them interested? CO: Exactly. It also gets a lot of those core gamers, as you just said, interested in what's hot and what's new. It gives them a perspective that they wouldn't normally possibly have, and gets them into the store to purchase some new games. It's a really good vehicle. Playing to Strengths My last question is... and I've touched on this earlier, but as digital distribution takes off, what do you think it is that keeps people interested in coming to GameStop, especially... they could buy games from Amazon or eBay. CO: I think it's what makes GameStop different from any retailer that sells games, and that is that we have incredible customer service experiences. When somebody comes in, they like to touch and feel the game. They like to turn the package around and look at it and see the screenshots. They like that shopping experience. We just see a lot of potential with our stores, because we wouldn't be opening otherwise. Something about the customer service experience is that very often, the guys -- and also women -- who work at GameStop are definitely gamers. Is that something that you recruit for? CO: It's part of the equation. Obviously, with an expanding landscape of people who buy games, we want people to be able to talk to a mom or a dad, but also talk to a core gamer. So yes, it's part of the equation, but it's not the only thing. We're always looking for good people who are good at selling, and who know how to communicate well with others. That's kind of the beginning, and building on that, if they have experience and they do play -- and many of them do, and not just one system but multiple systems, and know not just about one genre but have ten favorite. Those all become wonderful icing on the cake for us, because they're able to relate to a broad spectrum of customers.