Monday, November 06, 2017

GameStop (your follow-up)

I'm doing costume count results this week, so if you haven't sent in your count yet, please do so.

Here's an update on the Gamestop post from last week. This is from a former mid-level employee at Gamestop.

I worked at GameStop in the 2011-2013 timeframe as the company was trying to figure out how to diversify more and reduce its reliance on physical game sales. This move actually makes a lot of sense.

In recent years, the biggest challenge GameStop has faced is just getting people to come into the stores period.  Amazon, Walmart, BestBuy, etc. are all typically offering better prices, better service. It's been very hard for them to compete for the last few years. If it weren't for the launch of the Nintendo Switch, this year would be very bleak for GameStop in terms of game sales.

One of the things GameStop does amazingly well is customer analysis (especially with people who sign up for PowerUp Rewards). They've got a LOT of customer data that shows just getting someone through that door means money, and it doesn't matter if that person is coming in to buy a $10 Mario keychain, they know they can upsell that customer pretty successfully. And the more often that person comes through the door, the better those numbers get.  Everything GameStop does these days is to drive you to the store.  In-Store pickup, web-to-store, store-to-store, mobile all point the customer back to a brick and mortar location.

It's also worth noting that overall, game sales (even used) are not a growth area for the company anymore. With ThinkGeek, they've been moving heavily into the memorabilia and merchandise market. Tommy wants the latest Mario game?  I bet GameStop can sell mom/dad on some pretty sweet new Mario merch too, especially at Christmas.

That $10 a month rental fee? First, this will earn a positive return just by bringing customers back that had previously moved on to competitors.

Second, people will definitely forget they're signed up after a point.  All subscription businesses are built on a certain % of customers staying on for X months without actually using the service before cancelling.  GameStop is good with customer numbers and I'll put money on this being how they were able to justify the program financially.  Some people will maximize what they can get out of it, but a lot won't, and those people will be the profit.

Third, as I said before: upselling.  This gets people in the door. This gives store employees a chance to push a pre-order (because hey, you want Call of War Duty 15 when it comes out next year? We may not have many used copies on hand for a few weeks... do you really want to wait?), GameInformer subscriptions, and most importantly, merchandise. I bet, on average, that $10 monthly subscription generates them at least 5x that with customers who actively use the subscription.

In the end, I don't think they're really going to cannibalize at all, they're losing those customers anyway. This is a way to bring them back, and shift those customers into new product categories.

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