GameStop Doesn't Want to Die

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GameStop (NYS: GME) doesn't want to be dismissed as a dead retailer walking.

The company invited tech reporters -- including The Verge and San Francisco Chronicle -- to tour the 182,000-square-foot facility where it refurbishes consoles and game discs that die-hard gamers have traded in for in-store credit.

It doesn't end there, of course. Backed by a recent retail push into portable consumer electronics and a March acquisition of BuyMyTronics.com, GameStop's warehouse also reconditions tablets, smartphones, and iPods.


GameStop is not dumb. It has seen physical video game sales fall over the past three years. Industry tracker NPD Group revealed late last week that video game hardware and physical software sales plunged 23% in July.

The NPD data doesn't cover the sale of pre-owned systems and games, a niche that has helped GameStop put out better numbers than its dying industry. The NPD data also doesn't cover digital sales, a booming trend that GameStop is trying desperately to embrace.

For now, investors may be left with a sinking feeling.

GameStop reports on Thursday, and analysts see net sales and earnings per share slipping 7% and 32%, respectively.

These are challenging times. GameStop derives its thickest profit margins from its lucrative business of exchanging used games and gear for in-store credit, but all three console makers have been throwing their weight behind digitally delivered games.

Video game companies have also embraced the thriving ecosystems where developers can reach out directly to players. The popularity of Facebook (NAS: FB) as a gaming platform and the booming growth of smartphone platforms have forced game makers to adapt.

Electronic Arts' (NAS: EA) The Sims Social is attracting 16.6 million monthly gamers on Facebook, and Activision Blizzard (NAS: ATVI) is cutting out the middleman with its revamped Battle.net platform.

GameStop will survive for now. It should be the last video game specialty retailer left standing, and the cutthroat market for refurbished consumer electronics gadgetry may give it a longer life afterward at lower profit points.

However, the only real gains for shareholders now come from timing their purchases for moments when the market's pessimism outstrips the crumbling fundamentals and getting out when that reverses. It's a dangerous game to play.

Digital future
Even though the next trillion-dollar revolution will be in mobile, it may not involve GameStop's digital initiatives. A free special report will get you up to speed.

The article GameStop Doesn't Want to Die originally appeared on Fool.com.

The Motley Fool owns shares of Activision Blizzard, Facebook, and GameStop.Motley Fool newsletter serviceshave recommended buying shares of Facebook and Activision Blizzard.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Activision Blizzard.Motley Fool newsletter serviceshave recommended writing covered calls on GameStop. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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