Just before Christmas GAME warned its shareholders that sales had been lower than expected.
The news of a disappointing festive period can be a critical blow to any retailer, but especially to one in a market like video games, which is so heavily dependant on Q4.
The profit warning was followed by a slump in the firm’s share price, which prompted a review of its UK business in January.
‘Profit warnings’, ‘share price slump’, ‘business review’… journalists had plenty of doom-laden phrases to play with.
Two months later, and the situation appears to have calmed a little. It helps that the earnings drop that it had warned about in December was not as severe as had been feared (earnings were 33.1m, and not the 30m it had revised).
But also the games business has enjoyed a shot in the arm in recent weeks – there was the success of Ubisoft’s The Division, and then came the exciting announcement of PlayStation VR.
And besides, the company says the only reason it had a challenging pre-Christmas was down to one already redundant issue: the sudden collapse of PS3 and 360.
Those consoles are dropping off far quicker than we or any of the external market had forecasted,” CEO Martyn Gibbs admits to MCV.
That has obviously impacted the profitability across the market. The impact of the falling legacy software sales has been faster than we anticipated. However, what that basically means is that the impact will be diminished in the future.”
Does that mean the time is up for Microsoft and Sony’s older machines – barely two years after the launch of PS4 and Xbox One?
With pre-owned we will be last-man standing on these formats, and always would be,” insists Gibbs. But if you see the amount of titles being released now on PS3 and 360… our participation on mint will be dependent on the products that are available for our customers to buy, which is diminishing rapidly.”
GAME can’t blame all of its struggles on Xbox 360 and PS3. There has been slower than expected sales on PS4 and Xbox One software, too.
Working out why that has been the case is a little trickier, perhaps it’s the rise of digital, or the idea that gamers are buying fewer titles and spending longer on them. Gibbs, meanwhile, doesn’t believe the cramped release schedule has helped matters.
We are constantly talking to supplier partners about spreading out the releases better than we have seen, especially around Christmas which was, at one point, pretty tortuous in terms of trying to expect gamers to have finished Fallout before the next one arrived,” he says. That was not where we want to be.”
Gibbs understandably doesn’t want to dwell on the negatives. Instead he’s eager to talk about the other half of GAME’s business. He wants to discuss the ten per cent increase in digital sales, the more than 90 per cent jump his GAMEtronics business has posted, plus the 25 per cent increase in ‘other’, which includes the company’s new Multiplay eSports business.
Almost a third of our profit against the period last year, was from these higher growth categories,” Gibbs boasts. These growth areas, particularly Multiplay, tech, digital and merchandise, will be crucial in GAME’s future – especially if the physical software side continues to dip. The fact that these areas are worth almost 33 per cent of its profit is promising, but Gibbs says getting that percentage higher is not a business objective.[The third of the profit] is an interesting stat but I’m not a great believer in tasking the business on participation metrics,” he says. I want us to do really well on every format, and whatever the participation becomes of that, it is what it is. We have not set a target of making those areas of our business 50 per cent, because that might mean we are failing on other categories.”
"We always ask our partners to spread out releases, especially around Christmas which was pretty tortuous."
Martyn Gibbs, GAME
GAME has to do something about its UK retail division. No matter how successful it is proving to be in Spain, or how many sell-out shows Multiplay is putting together, it is the slow down on the High Street that is harming GAME’s bottom line.
In its financials, GAME talks about making retail ‘efficiencies’ – it has already closed its customer services department and outsourced it. But Gibbs says that these efficiencies will be largely behind the scenes, and store closures are not part of the company’s plans.
We are reviewing every part of the business based on the market, but also based on the organisation design we need both for now and in the future,” he explains.
In terms of answering the store question, we are not foreseeing any material closures in store. We have a lot of lease events coming up and there may be some changes, I will give you a couple of examples. We launched a big new store in Trafford last year, we did a big store in the Metro Centre where we took two stores to one, we just moved out of Southampton West Quay, and then put a store on the High Street, that is performing very well.
It is just about getting the portfolio of stores right at the right cost base. We still don’t have a loss-making store in the UK, which is still a very proud statement we can make.”
However, GAME’s High Street presence might not receive much love over the next 12 months – especially compared with last year, when it rolled out multiple digital screens into all of its stores.
Gibbs says that the firm will be investing further, although expect it to be in online, mobile, digital, the GAME app and, most significantly, the Multiplay events business.
Multiplay, which it bought for 20m last year, is yet to justify the price tag, but Gibbs continues to talk up its potential. Multiplay events are now being rolled out to other locations, and the division will also be running the GAMEFest consumer show in August.
We eulogise around Multiplay and Insomnia a lot at the moment, and for us we needed to build the right infrastructure – which was mainly around people,” Gibbs says.
We will keep pushing that business hard. We just think the opportunity for us is significant, and that we are building something that is differentiated to anything else – it’s not the same of any show globally.”
GAME’s transformation from boxed game shifter to a digital retailer-cum-marketing channel was never going to be seamless. When the firm stated two years ago that it had negotiated short store leases, you could see this was a company that was preparing for the sort of turbulence that the games industry is known for.
GAME has endured its first major bump in the road. The hard work now begins to make sure it is prepared for the next one.