The 2020 pandemic hit many companies hard, while other companies took it as a chance to grow, seemingly unaffected by the state of the world around them. NVIDIA (NASDAQ:NVDA) came out as one of those thriving businesses and achieved gains of 122% in 2020. The company’s graphics processing units (GPUs) were present and needed for trends that accelerated exponentially due to the pandemic, boost...
The video game retailer GameStop (NYSE: GME) has been a controversial stock in early 2021.
Even before the pandemic, the company was already going through one of its worst streaks in its performance. Its stock values were at an all-time low.
However, Reddit users united themselves and took this chance to massively purchase the company’s stocks “just because.”
Astonishingly, this event alone eventually made GameStop’s stock values grow ten times the initial price and quickly became one of the year’s hottest stocks. This phenomenon triggered the use of a new keyword that went to be known as “meme stock.”
After the fact, discussions amongst more established investors were held. Was GameStop actually on a natural path to permanent recovery and improvement? Was this all just a temporal solution to an ongoing problem?
The two main positions: Blockbuster or Amazon
Investor opinion tends to be divided on what GameStop’s future holds:
- Bull investors (those with more optimistic expectations regarding a given industry’s potential for growth) argue that this financial kick-start is GameStop’s opportunity to purposefully reduce its physical store efforts to focus more on its e-commerce ventures. Were they to be successful in that transition, they could easily reach Amazon’s success level in the video game industry.
- Bear investors (those with more pessimistic expectations regarding a given industry’s potential for growth) argue that GameStop’s physical business model is obsolete and will inevitably be replaced by its digital counterparts. Similar to Blockbuster’s lost battle against Netflix.
Why GameStop MUST learn from Blockbuster’s bust
While they’re both highly different scenarios, GameStop faces similar chances of reaching either of them in a nearby future. Here’s why.
Regarding the latter, the similarities are just there. Both GameStop and Blockbuster represent (or represented) a leading force in a specific sector of the retailing business. In Blockbuster’s case, they went on rent out physical copies of movies and, noticeably, focused all of its efforts on just that. But, as many know already, this went on to be a key player in its downfall.
Even if it could adequately defend itself against any mail-rented and machine kiosks competitors, it could not stand the battle against digital on-demand platforms. People were just more attracted to the idea of summoning entertainment content at will from the commodity of their homes. So Blockbuster’s extensive focus on maintaining a retro brand eventually became its biggest liability.
With the backdrop of e-commerce’s influence on gamer’s buying preferences and GameStop’s insistence on keeping the tradition of video game purchases via physical stores, it is easy to picture Blockbuster’s final trajectory as GameStop’s eventual future.
Amazon had to go through a lengthy trial and error process before reaching its current leadership level in video game retailing. Their biggest challenge during that time frame was the need for building up a perfect reputation, one that could quickly bring out the attention of new and more gamers around the world. Nowadays, its ventures into the gaming world are well known even amongst non-gamers. So one could say their efforts bore fruit in due time, but it was never an easy process.
However, GameStop has the luxury of already having a well-built reputation of its own. It is a name that everybody in the gaming world just knows and one that easily triggers nostalgia. The company could very well make use of this.
Regardless of its recent growth in the stock market, GameStop has already seen itself closing down many stores in response to the pandemic. However, the mixture of these two aspects could also help GameStop become more steadily lean from now on. In other words, the company has more safe room than ever to invest once again in bigger and better e-commerce ventures.
This is an advantage that Blockbuster never had during its last days.
But there’s still a matter at hand. Which path is GameStop going to take for the following months? And, should it?
An alternative scenario: Best Buy
Surprisingly, Best Buy is a name that doesn’t often get mentioned in these discussions. Investors tend to take the utmost polar extremes in their discussions, but Best Buy remains a possible and positive example for GameStop to follow from now on.
A while ago, Best Buy saw itself as part of a controversy that heavily stained their customers’ opinions regarding their offered services. This controversy eventually led to lower sales, which were heavily impacting the companies day-to-day activities. Similar to GameStop’s financial situation before the meme stock phenomenon.
However, after a wide restructuring of its inner workings, Best Buy’s new CEO unleashed the Renew Blue Initiative.
Instead of focusing Best Buy’s efforts on just one area of commerce, Hubert Joly took this as a chance to take advantage of each one’s benefits. He invested in new training for his workforce and restructured Best Buy’s inventory system.
By merging both worlds, he allowed clients to purchase on the official website while picking said purchases up in a physical store. This allowed other brands to rent out space inside the stores to offer their respective line of products.
Best Buy’s new business model quickly became an example for many other retailers in the market. While not as big as Amazon, it did indeed cover many areas that are key to success.
While Best Buy’s business model might not work to perfection in GameStop’s case, the company can take many valuable notes of revamping efforts. More than that, Best Buy is the perfect example of how a company could make practical repairs to a “broken” concept.
If GameStop were to allow itself to take advantage of this knowledge, it wouldn’t have to face any risk of becoming the next Blockbuster nor the pressure to reach Amazon’s sky-high reputation.