Could GameStop be next to file?????

GameStop had a miserable 2019. The gaming retailer knew it would be bad, given that it was at the tail end of a generation of consoles, with gamers likely to slow their purchases of software until new hardware came out. But it was even worse than expected, with sales dropping off 28%.

That may be a temporary blip, but GameStop also faces long-term competitive and existential problems. The digitization of games draws an uncomfortable parallel with the likes of Blockbuster and other retailers that have disappeared as their business models lost relevance.

Moody’s and S&P both downgraded the retailer before the pandemic hit. Moody’s Vice President Adam McLaren cited weak sales and performance as well as “sustained competitive threats from downloadable, streaming, and subscription gaming services.” Along with its other challenges, the retailer is dealing with a proxy fight by activist investors who want to oust some board members.

GameStop has the benefit of a strong balance sheet (something Blockbuster didn’t have in the years leading up to its bankruptcy and eventual liquidation) and flexible leases. It also has a turnaround plan based on boosting vendor relationships, shaking up product mix and transforming itself into a gaming hub. Also, the pandemic has actually given the retailer a modest sales boost, with people stuck, bored, inside their houses under government orders.

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