GameStop Business Model In A Nutshell

  • GameStop is an American retailer of video games, consumer electronics, and gaming merchandise. The company was founded in 1984 and was recently the subject of a short squeeze by Reddit investors.
  • GameStop operates a mass-market business model with no significant variation between customer segments. The company has a value proposition comprised of four parts: accessibility, innovation, convenience, and brand/status.
  • GameStop may enjoy a near-monopoly in video game retail stores, but it still competes with big-box retailer Best Buy and eCommerce giant Amazon. In the United Kingdom and Australia, the company faces strong competition from Game Retailed Limited and JB Hi-Fi respectively.

Origin story

GameStop is an American retailer of video games, consumer electronics, and gaming merchandise. The company was founded in 1984 by Leonard Riggio, Daniel DeMatteo, and Richard Fontaine.

Headquartered in Dallas, Texas, GameStop currently enjoys the title of the largest video game retailer in the world. The company operates almost 5,000 stores under various brands across the USA, Canada, Australia, New Zealand, and parts of Europe.

GameStop has been negatively impacted by the shift to online and downloadable video games, but the company share price skyrocketed in early 2021 due to a short squeeze orchestrated by Reddit investors.

With that said, let’s take a look at the company’s business model and some of its main competitors in the gaming industry.

GameStop business model

GameStop operates a mass-market business model with no significant variation between customer segments. That is, the company markets itself to any consumer seeking video games and related products.

Value proposition

GameStop’s value proposition focuses on:

  • Accessibility – GameStop stores are typically in high-traffic malls in major metro areas.
  • Innovation – through the GameStop Technology Institute, the company partners with academic institutions and technology firms to develop innovative solutions.
  • Convenience – this is facilitated by a buy-sell-trade program where gamers can donate unwanted software or hardware and receive store credit in return.
  • Brand/status – the global presence of GameStop reinforces the brand. The company also publishes Game Informer magazine, a leading print and digital video game publication.

Customer relationships 

GameStop customers have little interaction with employees, with the company website providing information on new releases, game availability, and store locations.

Key partners

The company deals with more than 80 different manufacturers, including Sony, Microsoft, Nintendo, and Electronic Arts.

To boost sales, GameStop also operates an affiliate program where third-party affiliates promote GameStop products on their respective platforms.

Cost structure

GameStop has a cost-driven structure where expenses are minimized via automation and low-price value propositions. Major costs are in the areas of sales, marketing, and administration.

Revenue streams

The company generates revenue from the sale of its products to consumers, whether that be through its website, affiliate program, or bricks-and-mortar stores.

Connected Financial Concepts

Economic Moat

moat
Economic or market moats represent the long-term business defensibility. Or how long a business can retain its competitive advantage in the marketplace over the years. Warren Buffet who popularized the term “moat” referred to it as a share of mind, opposite to market share, as such it is the characteristic that all valuable brands have.

Meme Investing

meme-investing
Meme stocks are securities that go viral online and attract the attention of the younger generation of retail investors. Meme investing, therefore, is a bottom-up, community-driven approach to investing that positions itself as the antonym to Wall Street investing. Also, meme investing often looks at attractive opportunities with lower liquidity that might be easier to overtake, thus enabling wide speculation, as “meme investors” often look for disproportionate short-term returns.

Payment for Order Flow

payment-for-order-flow
Payment for order flow consists of a “kickback” or commission that the broker routing customers to a market maker (in charge of enabling the bid and ask price) will pay a commission to the broker as a sort of market-making fee.

What is a SPAC

special-purpose-acquisition-company-spac
A special purpose acquisition company (SPAC) is a company with no commercial operations that are created to raise capital through an IPO to acquire another company. The SPAC is also called for that reason a “blank check company” as it will use the money provided by investors to enable private companies to go public via the SPAC.

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