News Game Plus (March 23-29)
GameStop
Let’s start this week witha few stories from GameStop. It seems that they finally closed all of their stores indefinitely until it’s deemed safe again. Coincidentally, just after the big releases of Doom and Animal Crossing that the company desperately needed the profit from. Taken with a grain of salt, you hear stories from the front lines of GameStop and how the stores didn’t have adequate cleaning materials due to shortages and managers given scripts to say to law enforcement if they came by to try and close down the stores. Understandably the situation is quite dire for Gamestop but the situation is also dire for other business that can’t afford to shut down let alone how dire it is for many people and their actual health.
I wonder if GameStop has any plans to figure out a way to open a few of their major stores for other big releases like FF7, RE3 and The Last of US 2 should these games all hit their respective release dates. Data revealed in their most recent earnings call shows that during these times GameStop has actually seen their sales increase. This is likely due to the fact that the majority of people are staying in and staying safe.
Gaming is a great way to pass the time and GameStop is aware of this and doesn’t want to miss out on this potential revenue. Currently after claiming they are an essential service they have fully closed their doors and are currently pick up only. At the moment they are offering shipping to your home as well as contactless pickup. Order and pay online, select your store and then call when you are outside. The stores will be offering this service from 12-8 for the foreseeable future, unless GameStop determines that this method isn’t providing enough revenue to justify the cost.
This week GameStop also announced their FY2019 and they Q4 earnings report. Top level impressions seem like a step in the right direction but GameStop has a long way to go. Debt was reduced $401 million, Inventory was reduced 31%, which last time we talked about GameStop there was the insiders that were saying over the holiday season they would have been able to sell much more if they had inventory but stock was constantly out. Im sure you are familiar with walking into a GameStop and seeing a dusty five year old brand new console on the shelf and i’m sure they would love to eliminate these wasted costs.
They also purchased back $199 million worth of shares. There are a few reasons GameStop would repurchase their shares and that would be if they thought their value had been too watered down and with the share price being near a 20 year all time low, there is a good possibility of that. Another reason is that the company is investing in itself. GameStop has been making a lot of changes lately and you have to believe in yourself if you are at the top of the company that you will be able to turn the ship around and become relevant again. The final reason a company would do this is to improve its financial ratios and basically if there are less shares of a company available on the market, but all the financials stay the same than earnings per share would go up. This is a very simple way to improve your financial ratios.
According to GameStop, they are entering 2020 with a “strengthened balance sheet and a refreshed board of directors which will further enhance the ability to drive the transformation plan” As we know from last week when we talked about Big Reggie joining the board at the end of April along with a few other new additions with large corporate experience. In Q4, GameStop was actually forecasting a loss but returned with slightly over 40 cents per share earnings. GameStop actually exited the year with $500 million in cash, which stings a little when you take into account all the human resources they restructured in 2019, including a majority of the Game Informer editorial staff. It seems like most of those people have found better opportunities in the industry including Ben Hanson and the computer loving cohorts at MinnMax.
Moving forward, Gamestop has four pillars that they are hoping will be the base for their success. Optimize Efficiency, Creating Hubs, Digital Ecosystem and Vendor/Partner Relationships.
As I mentioned in the intro GameStop does plan to close down a similar amount of stores in 2020 as they did in 2019 which was around 320 out of the global 5500 stores. This is one of the major key pillars of their future plans. In the words of GameStop “optimize the core business by improving efficiency and effectiveness across the organization by evaluating markets for continued store de-densification” In simpler terms, they are closing down stores that aren’t profitable or are too close to others. It was a bad business plan in the first place to have stores so close to each other that the cannibalization of revenue and cost would outweigh the sales benefits.
The digital ecosystem is an area that GameStop was very slow to enter. Although with the recent global shutdown, their implementation of an improved website that allows for such purchases as pay online and pick up in store couldn’t have come at a better time for the company. At the very least the company will still be able to generate some revenue during these times by offering the buy online and pickup option as well as the direct to home delivery, but their logistics realistically will never be able to match companies like Amazon. This goes without saying that no matter how good your logistics and supply chain get, it will never be able to compete with fully digital marketplaces that are offered directly from the console makers.
Keeping with the digital ecosystem, it was mentioned that they plan to enhance Game Informer with interactive digital media. Although that statement is very vague, its nice to hear that Andy McNamara and the rest of the GI crew that is still there are still part of the companies plans moving forward at least for the interim. Game Informer does a great job and it feels like for some reason they don’t quite get the respect they deserve.
As for their pillar of offering social and cultural hubs it would seem that this option just doesn’t make sense in a post social distancing world, at least for the indefinite future. The final pillar of their current and future plans involve transforming vendor and partner relationships for the future of gaming. In 2019, GameStop began testing digital revenue starting with key partners, which seems like a step in the right direction although they dont explain in further details exactly how this was accomplished. As for how they plan to accomplish this is 2020, GameStop will “continue to explore and advance new revenue model opportunities”
Given the current climate of the world its hard to see many of these trees bearing any fruit soon. “GameStop is closely monitoring the dynamic situation around covid19 and the potential impacts on business. Despite the increased demand since the outbreak began…given the uncertainty around the evolving situation, the company has suspended further guidance at this time” Despite finally seeing a little light at the end of the tunnel, it will be interesting to see how GameStop comes out on the other side of this after many of its customers have made the switch to fully digital or Amazon.
Nintendo
The other topic that I wanted to focus on this week is Nintendo. There are a few things worth talking about in the world of Nintendo this week including how its supply chain has been affected that Switches are sold out most places, Animal Crossing New Horizon starting off with strong sales and a surprise Nintendo Direct.
If you would have told me that there would have been two Nintendo Directs in March, I would have expected some big announcements. There are many rumours flying around the internet as for what Nintendo has planned for the second half of 2020 with some decent reasoning to back up many of these theories. I have read things that covers the whole aspect of the spectrum from Mario Kart 9, Wind Waker Switch, Metroid Prime Trilogy, new 2D Metroid in the style of Samus Returns, Paper Mario, Odyssey 2, Breath of the Wild 2 coming this year. If you can imagine it, then odds are someone has mentioned it in a leak somwhere. However, we got none of that in either of the March Directs.
The first one was an Indie World Showcase, which we talked about last week and how we thought it was a little underwhelming. This was even considering expectations were in line for Indie only announcements. The second was what they called a Nintendo Direct Mini, which I guess just means that they are trying to manage expectations based on the level of announcements because it was close to thirty minutes. Some of the highlights of the Direct Mini include 2K bringing some of their games to the Switch in May including Borderlands, Xcom 2, and Bioshock. Even though it was just released, we got a little tease at some upcoming events in Animal Crossing including Bunny Day and Earth Day. One of the more interesting games that caught my attention was Good Job, which seems like a great local co op in the vein of Overcooked. Its available now and after spending a little time with it already, it seems great but stay tuned for the full review soon. The next Super Smash character will be from the Arms universe but that was all the information that was given.
Honestly, I half expected an actual full Direct based on one reason and that is Nintendo is a publicly traded company and they need to give shareholders information on how the company plans to make money with their fiscal year ending March 31, 2020. Although, they wont be reporting any of the Q4 or FY2019 until May 7, 2020, which means that if they do plan on giving the shareholders something to look forward to they have a little over another month to put that information together. It would obviously create a bigger splash with gamers and fans if they gave this information in the form of a Nintendo Direct, but many shareholders dont watch those, so its possible that Nintendos plans for 2020 might just be buried in their FY2020 outlook.
That is the near future of Nintendo but in the present world, Nintendo currently has some good news regarding the sales of Animal Crossing and some good problems with the Switch console being scarce to the point of sold out most places. I have checked online around my area to see how stock is and there are a few Walmart thats show minimal inventory but most places are sold out. This is a combination of people being strongly suggested or forced to stay inside which gives some people free time to play video games. Especially if you are quarantined with your younger children, the Switch is hard to beat with its fantastic local multiplayer capabilities and their fantastic, family friendly library they have built up over the past three years. It’s interesting that three years ago when the Switch was released there was slight stock shortages then as well.
It’s a very in demand system that has been since its release and it a major reason that the Switch has been climbing the ranks as one of the best selling Nintendo systems. Who knows where it will end up when the dust settles and how long they will fully support the system for. If I had to wager I would say that by the end of the consoles lifecycle, it will have surpassed the Wii at 101.63 million, which seems crazy because that system felt like a cultural phenomenon. I think it will also pass the original GameBoy which is currently sitting at 118.69 when combined with the sales of the GameBoy Color. That would place it second on the all time Nintendo list, only behind the DS which amassed 154.02 million.
Nintendo has also already said that their supply chain has been affected by the virus concerns at their factories in Asia and that hardware and software may be delayed as a result. Nintendo gave a comment to GameSpot “Nintendo Switch hardware is selling out at various retail locations in the US but more systems are on the way” As it sounds they should be back on stores shelves sooner than later so, try not to support the people who are trying to capitalize during these times.
The system isn’t the only that is selling extremely well right now. Animal Crossing New Horizon sales numbers have already started coming in from Japan and they are quite excellent. According to Famitsu, the latest Animal Crossing sold almost 2 million physical copies in its first three days on the market. New Horizons is my first foray into the series, and I have heard that a lot of newcomers have decided to try to the island life for the first time with this entry. This would explain the almost 400k Switch units that were sold in Japan during the launch week of the game. This is amazing news for the series that has been around since the days of the N64 but never quite managed to grab the spotlight like some of Nintendos other major franchises, but I think that will change moving forward.
I am slowly working my way through the game enjoying every moment as I go and not feeling the need to power through it as it is quite relaxing just to catch a few fish and stop playing. Obviously during the current climate and uneasy times people are going through, a game like Animal Crossing delivers the most relaxing form of escapism possible. Nintendo has done an excellent job with onboarding new players to the series which makes it very accessible and is a large reason for the sales being as successful as they are so far. With the sales of the game being as high as they are already, New Horizons will easily be one of the top selling games of the Switch. With Nintendos’s Q4 ending March 31, we will get a pretty good idea of just how well the game sold worldwide, digitally and physically when they report on May 7, 2020.
On a smaller note regarding the global health pandemic, according to Games Industry.biz, Nintendo has donated 9500 N95 respirator masks for first repsonders and health care providers. According to a Nintendo Rep, the masks were originally purchased for “emergency preparedness planning” With many companies forced to have employees work from home, these masks might not have been required for Nintendo as they once thought. Its always nice to read stories like this about companies helping people and people helping people during these times.