GameStop Retail Strategy Analysis

Executive Summary

The following report focuses on GameStop retail strategy analysis. The video gaming industry is viewed by many analysts as inherently interesting owing to its massive and competitive nature. Due to changes in the global trends and free online videos, the video gaming industry should be re-structured. To this end, “Porter’s Five Forces” business model has been used in this report to help in deeper understanding of GameStop.

The industrial growth and expansion of the GameStop are majorly influenced by video game components, innovation, market changes, business structures, and suppliers. For instance, the recent consumer empowerment and increasing sophistication trends have prompted the video gaming makers and dealers to search for new markets, which are specialized, among the ones that are already saturated with customer diversity bases. A good example of such a market is the one in the United States. Therefore, it is important to venture in the newly emerging markets, especially in the Latin America and South East Asia. This will promote the video gaming dealers to establish production facilities in the overseas. Therefore, such establishments will in turn lead to business strategic partnerships and global alliances with foreign video gaming dealers.

Issue

GameStop is currently facing a lot of changes when conducting its business, because there are more explosions in free social network gaming or online gaming, especially the ones accessed through Farmville on facebook. In this regard, the new technology and varying tastes of new gamers threaten the success of GameStop retail model as well as hardware platform. Therefore, GameStop must address this issue to succeed in the market.

SWOT Analysis

Strength

• GameStop Retail is the leader in the global video games and hardware. Basically, it draws its strength from the revelation that the premium products will continue to stay in the global market.
• The second strength is that those high quality products such as the GameStop video games and hardware will maintain and possibly increase growth internationally.
• The other factor that strengthens the operations of GameStop is increase of the rate of growth of premium video games and hardware compared to the ones of demanded in mass market.
• The retail has various product ranges to offer.
•  Moreover, it places special importance on technological development of the various segments such as the video games and hardware.
• GameStop thrives on innovation, because the retail  has well-developed marketing strategies.
•  The retail management is experienced in the electronic video gaming industry, thus it gives hope for its development.

Weaknesses

• The prices of the electronic video gaming products and hardware are on the higher sides, consequently blocking other interested buyers living in the lower income category.
• The economic conditions in the Europe, America and Asia, which constitute the largest and primary market, have deteriorated in recent years due to unprecedented financial crisis. Indeed, such changes have affected the operations at the retail, and have contributed to its weaknesses.
• GameStop has not been able to promote its other products other than the small video games and hardware segment, thus not been able to attract a larger market from the business communities using free online gaming videos.

Opportunities

• The high-class population in the Europe, United States, Asian and the rest of the world is increasing, therefore the retail is sure to receive pressure due to probable increase of the demand for the electronic gaming and hardware products in the coming years.
• Technology in the retail has also developed indicating that the organisation will benefit from promotion.
•  The emerging world market provides a great opportunity for the business on a global platform.
• GameStop’s incubation of efficiency dynamics presents an opportunity for the future growth.
• The retail has established market in many parts of the world that forms its security and opportunity for further development.
• Moreover, customers always demand luxury, and since most of the retail video games and hardware depict this quality, it has possibility for further growth and development. 

Threats

• The external environment that affected the operations at the retail included the competitors (such as The Exchange Chains/Retailers), customers, suppliers’ attitudes and the government influence.
• Major competitor sites, especially free electronic gaming networks were preferred, because of its cheap video games and hardware, which interfered with the internal operations of GameStop.
• The price of raw materials for manufacturing video games and hardware is expected to rise in the future, thus threatens GameStop’s operations.
• The other threats to GameStop include lifecycle factors, global economic downturn, international depression and financial crisis among others.  

PEST Analysis

Political
The performance of GameStop was influenced by organizational change, which is one of the political factors witnessed. Global political factors coupled with other issues discussed previously affected its performance.

Economic

This was witnessed as a result of the globalization that created room for liberalization in the market structure. Economic policies that are associated with globalization allowed the implementation of competitive market structures, whereby all the players in the electronic gaming industry were given equal opportunity to exercise trade in a fair and free competitive business environment. This was evidenced when GameStop was given a level playing field with free online video gaming retailers, a scenario that encouraged stiff competition and business rivalry.

Sociological

Coupled with other economic factors, sociological changes in the electronic gaming industry led to the dwindling performance of GameStop. This was witnessed with the rapidly changing tastes and preferences of the consumers.

Technological

GameStop’s performance was significantly affected by technological changes that were felt globally. This forced new entrants in the market, which offered stiff competition in the industry. However, GameStop’s technology was outdated and irrelevant to the current global business, and that was why it lost most of its customers to the competitors.

Michael Porters Five Forces

Michael Porter came up with five major forces, which influence industrial performance. Moreover, the forces identified are “barriers to entry, supplier power, and degree of rivalry, buyer power and threats of substitutes” (Evans and Wurster 102). Considering other industries that operate under the free market and capitalistic economy, analyzing the video gaming industry through the use of Porter’s Five Forces Model, it is very important to understand the market dynamics. However, in this discussion, the main focus is on the analysis of the barriers to enter the existing video gaming industry.

Electronic video gaming industry has low entry barriers that only allow many firms to enter the market. In fact, there are many companies that dominate the video gaming industry since there are fewer barriers to entry. In such business environments, there are high economic rents, which make the video gaming industry attractive to many investors, both the local and foreign.

A newly established retail faces the threat of startup capital. It is such substantial barriers that are evidenced in the video gaming industry. The working capital that is required from a new retail to set up a manufacturing capacity, which helps in achieving the intended level of production, is prohibited. Therefore, it is not easy to attain the minimum efficient scale of production. The limitation can be attributed to the nature of the video gaming industry that has a very specialized manufacturing facility. In case the video gaming retailing facility fails, it is not easy to re-tool it. It is only possible for the new retailers to enter the video gaming industry through mergers, acquisition and strategic partnership arrangements.

The startup capital is tied for the daily operation of the business, and this money is not invested elsewhere. Thus, it is difficult for the small and up-coming retailers to get enough money to finance their daily operation. This can force them to rely on borrowings from various financial institutions that offer loans at high interest rates.

The economies of scale that exist in the video gaming industry create a high barrier to entry. Firms that operate in the video gaming industry must meet the required scale size. Though, the firms can achieve the economies of scale, they do not enjoy the associated learning curve benefits in the short run. It is a difficult task for the firms to prove the existence and probably the non-existence of the economies of scale, which is not tangible in nature.

It is a big challenge to the small firms in the video gaming industries since their brand identity is still very low. For instance, electronic video gaming buyers often make buying decision based on the retail’s brand identity. This presents a major entry barrier in the industry. In such cases, the small retailers tend to incur a lot of expenses against the sales revenue. Such a downward trend on the revenue earning discourages other small firms from entering the market.

Focusing on absolute cost advantage, legal constraints such patents and copyrights in the video gaming industry which present a very high barrier to entry, and these are created by the legislation of the government. Such government documents create monopoly in the industry, thus barring new entrants.

Innovation and Development

GameStop has been greatly successful due to its strategic approach and innovation of electronic video gaming and hardware. Indeed, this has enhanced GameStop’s growth/development, organisational strategic capability and promoted the stakeholder expectations about its products. Through the retail’s strategic policies, adoption of technological ways of producing quality video gaming and hardware, GameStop has been able to produce high quality video games and hardware, which meet the consumer demand. This has also helped the retail to minimize the impacts of external environment on the strategy.

Summary

GameStop was responsible for its own declined performance owing to poor strategic decisions that were taken by the management team. Its management failed to realize the need to change swiftly and embrace technological changes and advancements that were eminent in the electronic gaming industry. GameStop also failed to effectively manage its operating costs, which were rising faster than its revenue earnings (Cokins, Blocher, Stout and Chen 147). The strategy of GameStop was misdirected since more of its sales targeted the electronic gaming, rather than relying on capital assets. In the end, the retail could not generate sufficient income to finance its business operations.

Due to the global internalization and customization, information management has become an essential component of organizational management systems. Information system has always been crucial for organization. GameStop has been using information systems and/or information technology in its operations on a small scale. However, it has taken advantage of a number of information systems' capabilities in its video gaming and hardware products. This has been done in an effort to ensure high quality service that meets dynamic demands of its customers. However, GameStop has failed to implement an incorporated management information system that can enable it to address various informational needs of clients, management, and shareholders, thus acquiring and maintaining customers who opt for free online video gaming. 

 It can be argued that GameStop suffered the drawbacks of inefficient outsourced information technology. The retail did not involve all the staff in the development of the system used as a retailing platform for its electronic video gaming and hardware. In addition, the system could be merely basic and failed to provide the staff with necessary data to ensure informed management decisions.

The Appropriate Solution Strategies

It is a strategic approach to inspire employee to increase sales or net earnings by rewarding them, based on individual performance. This will improve innovation and developments among the employees, which are necessary in discourage rivalry and unhealthy business competition across the globe.  In this regard, the management of GameStop needs to embrace individual equity principle, which can be achieved by developing a compensation program, which recognizes excellent employees’ performance. An effective performance appraisal is important for developing and motivating employees for career advancement opportunities. Therefore, GameStop should not use a generic performance appraisal, because it does not help develop employees. Regarding this, GameStop should have a merit base system where employees are rewarded for meeting goals and recognized for accomplishments since these help in promoting productivity, not only at present, but also in the future.

Moreover, GameStop should upgrade its online sales or information platform, as an approach to keep pace with rapid technological changes, to out-compete its competitors, which offer electronic social network gaming and hardware. In order to upgrade its information systems to ensure efficient operational management, GameStop should employ Earl’s multiple methodology to guide formulation of strategies that are geared towards “attainment of efficient information management system” (Evans and Wurster 82). GameStop should develop information system strategy with clear hierarchical dispensations in terms of needs of the corporate level of the organization, satisfaction of the business unit level, and specific functional needs of the organization. Moreover, the retail can form information system steering committees, which will oversee planning and implementation of its electronic gaming and hardware products. This level will be highly involving since it will significantly influence acceptability of the information system developed by the staff of GameStop.

Earl’s multiple methodology offers three methods, which GameStop can “use to evaluate its strategic formulation needs” (Chaffey 69). GameStop could use the top-down method, where the process begins with general objectives of the business. This methodology requires management to identify critical success factors that influence key decisions and business objectives. These will make up information requirements for the application development portfolio. Information system management developers can use generated information to create a suitable program that will meet information requirements established in GameStop retail. Earl’s other methodology is the bottom up approach. In this method, GameStop will engage an auditor to audit the current system to establish information requirements that the developer will use to create an information system that will best serve the established requirements. The last methodology that GameStop should employ in formulating its strategy is the inside out approach. According to this approach, the management will initiate an inquiry to establish “Brightspark” ideas (Grant, Hackney and Edgar 64). These ideas will influence the type of information system that the retail could use to solve identified issues.

In this regard, GameStop could efficiently use the bottom up approach by giving the management the report that served them with all information requirements. Management consultant carried out a full audit of the current system and established necessary information requirements for competitive electronic video gaming and hardware. Management of GameStop can use this information to develop an upgraded information system that will address identified current information faults. There are several business intelligence techniques that GameStop could employ to tackle information needs identified.