“How can a market leader go out of business?”
The Game Group, a video games retailer with more than 600 stores in the UK and Ireland, and nearly twice as many worldwide, had a pretty awful Christmas. Sales over this critical period were down 15 per cent, as its share price collapsed to 4p from 70p the year before and 300p in 2008. At the time CEO Ian Shepherd said “We remain the market leader and have a clear strategy which will return the business to growth. We are adapting to the changing market and are well prepared for the next hardware cycle.”
Well, things have got a lot worse for Europe’s largest dedicated video games retailer since then and this “market leader” seems to be just about to go out of business. Since Christmas, suppliers have been holding back the new releases that Game Group was hoping would help it out of all this as the business has deteriorated and the risk of failure has increased.
In a statement on Monday, Game Group said: “It is uncertain whether any of the solutions currently being explored by the board will be successful or will result in any value being attributed to the shares of the company.” This after the share price fell by more than two-thirds to 1.1p.
So, just how can a business that its boss thinks is a market leader go out of business so quickly? Well, there isn’t much point being a market leader in an unprofitable and unsustainable part of a value chain, or an outdated channel to market. You should always worry if you haven’t got people copying your business model. It tends to suggest that either you have a wonderful market advantage, or more likely, there is no money in it any more.
Clearly, customers have not seen enough added value in a dedicated video games shop to sustain its higher cost base. This is hardly an unexpected turn of events as, from HMV to Comet, the internet has undermined the old retail model. Sales have migrated online and to others, particularly to supermarkets who have become masters of selling everything at a lower cost than any dedicated retailer could dream of.
In the FT yesterday, Peter Smedley, retail analyst at Charles Stanley Securities, was quoted as saying that “imminent” collapse into administration “is now a real possibility”. He seems to think US-based Gamestop is the best positioned financially and strategically to pick up some of the pieces, adding, “However, we would argue that Gamestop can afford to take its time and pick up the Game assets it really wants.”
If you are a market leader, maybe you should think a bit more deeply about why you are and whether it is necessarily a good thing. It wasn’t enough for the Game Group.