The world's largest video game retailer, GameStop, has a staggering number of stores around the world: Over 5,700 as of September 2019.
While that massive number of retail locations might've made sense in a previous decade, it's become a liability for the game retail giant as consumers increasingly buy digital games: Each of those over 5,700 stores has a quarterly operating expense of approximately $100,000.
That's why, among many other reasons, GameStop is shutting down some of its many retail locations.
"We are on track to close between 180 and 200 underperforming stores globally by the end of this fiscal year," GameStop CFO Jim Bell said on the company's Q2 earnings call last Tuesday.
It might sound like bad news, but it's actually an important part of GameStop's effort to reboot — the company is shoring up operating expenses and other needless expenditures as it attempts to stay afloat.
"If they close 200 stores this year, operating expenses should drop by $20 million next year," Wedbush analyst Michael Pachter told Business Insider in an email last week. But that's not all: The company is expecting to close a "much larger" group of stores in the next one to two years, according to Bell.
The initial wave of closures, he said, are "opportunistic," whereas the next wave of closures will come from a deeper look at each store and its region.
"We are applying a more definitive, analytic approach, including profit levels and sales transferability, that we expect will yield a much larger tranche of closures over the coming 12 to 24 months," Bell said on last Tuesday's investor call.
A first look at where some of those stores closures are likely to happen comes from Thinknum, which did a proximity analysis of the retailer's worldwide footprint. It found some pretty stark metrics:
- On average, there are two other GameStop locations within five miles of any given store.
- That average grows to six locations within 10 miles of any given store.
- At one Manhattan store, there are a whopping 35 other stores within just five miles.
That density problem applies to GameStop's locations all over the US, from Florida to California, according to the Thinknum analysis.
As we learned on a tour of New York City-area GameStop stores this summer, there are a staggering number of locations in the five boroughs. There's a good reason for that: GameStop grew largely by mergers and acquisitions, primarily of other video game retailers. As GameStop grew it store count, it increased its redundancies.
The closures are the latest cost-saving measure from GameStop's new leadership team — the company has already had two waves of layoffs.
Under its new leadership team, GameStop launched an initiative known as "GameStop Reboot" that's intended to breathe new life into the retail chain. The first step of the reboot involves addressing issues with so-called SG & A, a financial term that stands for Selling, General and Administrative Expenses. In simpler terms: It means lowering the cost of salaries, taxes, advertising, and other nonproduction costs.
Unfortunately, it also means layoffs and store closures.