Things continue to look rough for struggling brick-and-mortar game retailer GameStop. This week, the company announced comparable store sales were down 23.2 percent year over year for the third quarter of 2019. It’s a decrease led by a whopping 45.8 percent decline in hardware sales and a 32.6 percent fall in software sales.
Those are hard numbers to spin, especially when they’re leading to corporate layoffs and hundreds of store shutdowns (including the newly announced shuttering of all GameStop stores in Denmark, Finland, Norway, and Sweden by the end of 2020). But GameStop CEO George Sherman attempted to put a good face on the results in an earnings call this week. There, he argued GameStop’s current troubles are a predictable result of the end of the current console generation—and consumer anticipation of upcoming consoles from Sony and Microsoft—as much as anything else.
“With ‘generation nine’ consoles on the horizon set to bring excitement and significant innovation to the video game space, those anticipated releases in late 2020 are putting pressure on the current generation of consoles and related games, as consumers wait for new technology and publishers address their software delivery plans,” Sherman said.
GameStop CFO Jim Bell echoed the sentiment during the call, predicting that “the cyclicality of the console business” will continue to hurt GameStop’s sales performance for the next few quarters.” After that, though, the company “expect[s] robust sales increases in late 2020 led by the generation nine hardware and software slate.”
There’s some merit to the argument that GameStop is just the victim of a temporary end-of-cycle downturn at the moment. As Sherman notes, NPD reported “significant double-digit industry declines in new hardware [sales] for September and October” across the US game industry, suggesting gamers might be largely holding off on new consoles until new hardware arrives late next year. And while hardware sales are a pretty low-margin business for GameStop, new consoles get people in the door and can renew interest in buying high-margin software and accessories for their fancy new purchases.
But there are signs that the end-of-generation doldrums are hurting GameStop’s core business more than other parts of the video game market. As NPD noted in its own third-quarter report on the overall US game market, spending on “digital console content” was up, while spending on “physical console content” was down. That’s just a single quarter, but it reflects long-standing trends in the US game market since 2010, as consumers have moved away from physical discs and cartridges and toward purely digital gaming.