Tuesday, October 11, 2005

Mergers: Dirty Pretty Things

From 1Up.com:
The Philadelphia area's about to become the first wave of employees affected by EB Games' merger with GameStop. The Philadelphia Business Journal says that GameStop's already announced plans to close down EB Games operations in the Greater Philadelphia area, cutting off 700 employees in the process...

In addition, GameStop will also be shutting down the EB Games corporate headquarters in West Chester and distribution site in Coatesville, Pennsylvania. Layoffs aren't immediate, however, and will be staggered throughout early next year and into the summer, with some employees having the option of relocating to Dallas, Texas.

This is an inevitable part of the merger process, unfortunately. Another part of the process that will be announced within the next six months will be store closings. It makes no sense to have both a Gamestop and EB open within half a mile of each other. Good grief, until a few months ago, I knew of two Gamestops open within half a mile of each other!

Gamestop doesn't really have a choice--it's bad business to have stores cannibalizing each other's business, and they've assumed a ton of debt to finance this merger. They have to move quickly to cut costs. I only hope that some effort is made to distinguish stores beyond their total sales figures.

Wow, that sounded naive.

Of course they're only going to use sales figures. They'll look on a map, and in every spot where there's a Gamestop and EB within X miles of each other, they'll close the store with lower sales. And it might happen in waves. For the first wave, if stores are within a mile of each other, they'll close one. If the bottom line doesn't respond the way they need it to, they'll make another pass--maybe at three miles this time.

The first wave of store closings is predictable. If they do a second wave, though, that will be a red flag that they're in trouble.

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