Online video game sales killing GameStop

Bay Area

New York (CNN Business) — GameStop is in the wrong line of the business at the wrong time: It’s selling physical video games and consoles in brick-and-mortar stores at a time when people are downloading and streaming games from the internet.

The company’s first-quarter sales fell 13%, and GameStop announced Tuesday evening it would no longer pay investors a quarterly dividend. GameStop’s (GME) stock fell 36% Wednesday.

GameStop has been in a multi-year slump. The company’s stock has lost two-thirds of its value over the past two years as customers switch their gaming habits.

Downloads have overtaken CDs. Mobile gaming is satisfying casual gamers. And video game streaming is a fledgling business that could make serious competitors out of Google (GOOGL), Amazon (AMZN) and Apple (AAPL). GameStop is a record store in the age of iTunes and Spotify.

Adding to the company’s misery, GameStop said customers are holding off video game console purchases, because they’re waiting for Sony and Microsoft (MSFT) to release new versions of the PlayStation and Xbox. Both are getting a little long in the tooth, and Sony (SNE) has already started to discuss some features for its next PlayStation. Nintendo Switch sales are also in a slump.

The company said it would use the money it saves from halting its dividend to pay down debt and increase promotions and sales to drive customer traffic. But that will pinch profit even more. The company said its quarterly earnings fell by 63% at its businesses that were operating at least a year.

In March, GameStop hired George Sherman, a veteran of Target and Home Depot, to become its new CEO — its fifth leader since November 2017. Sherman said he is confident GameStop can win again, despite the forces acting against it.

“We believe we will transform the business and shape the strategy for the GameStop of the future,” he said in a statement Tuesday.

He preached patience: He said GameStop is in the midst of a multi-year transformation effort. Sherman said the company can turn itself around by cutting costs and focusing on the core elements of the business that are still succeeding.

The problem is there’s not much that’s working for GameStop. The company has already closed hundreds of stores over the past several years, and GameStop forecast sales at stores open at least a year would fall another 5% to 10% in 2019.

Ironically, GameStop was once a streaming video game innovator. It bought Spawn Labs in 2011 to create a kind of Netflix for video games. But it was too early: The technology wasn’t quite ready, and GameStop shut down Spawn Labs in 2014.

The company once considered selling itself, but it found no buyers wiling to make an acceptable deal. In January, the company announced it was no longer pursuing a sale. Now GameStop is running out of options.

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