One of retailer GameStop’s biggest private investors has called on the company to make significant changes, and close stores, to help turn things around. The plan also includes a recommendation to scale down or close GameStop’s businesses in Europe and Australia.
Through his venture capital firm RC Ventures, Chewy Inc. co-founder Ryan Cohen holds a 9.8 percent stake in GameStop’s shares, making him one of the biggest investors. Cohen said in a letter that his attempts to discuss changes with management privately “yielded little progress,” he’s now reaching out to the board of directors to try to stir things up.
In the letter obtained by The Wall Street Journal, Cohen said GameStop “lacks the mindset, resources, and plan needed to become a dominant sector player.” Cohen called out GameStop for its “apparent unwillingness to pivot with urgency and grow with gamers.”
Stockholder value has plummeted in recent years, Cohen pointed out, adding that GameStop’s stock remains one of the most shorted stocks out there, “which speaks volumes about investors’ lack of confidence in the current leadership team’s approach.”
In Cohen’s eyes, GameStop has also failed to keep up with major changes in gaming in recent years, including the transition from physical hardware to streaming, the growth in mobile, and a change in buying behavior away from “mass retailers.”
GameStop has posted revenue declines and income losses in recent quarters, Cohen said, pointing out that this is particularly a problem because the gaming business across the industry is experiencing growth currently during the pandemic. GameStop may see an uptick in sales coming up thanks to the launch of the PS5 and Xbox Series X, and the enduring popularity of the Nintendo Switch, but Cohen said, “the next console cycle’s temporary sales bump is not a justification for complacency and glacial transformation.”
So what does Cohen want to do to turn things around? He said he’s confident that GameStop can evolve its business and become a market-leader again. To get there, Cohen said to the board that he advises that GameStop should close more stores.
“Now is the time to identify duplicative, underperforming stores and plan to forgo lease renewals,” he said.
For what it’s worth, GameStop has already closed nearly 400 stores in 2020 alone, and more closures are planned for the future.
Cohen also said GameStop should look to sell or “streamline” the company’s “non-core” operations in Europe and Australia to “reduce losses and potentially generate cash.” GameStop owns the EB Games stores in Australia.
“While the Australian market has shown signs of life, it is not nearly big or strong enough to offset the losses linked to the Company’s hundreds of stores across European nations,” Cohen said.
“Taken together, these factors can fuel the necessary investments that GameStop could be making to delight and retain gamers well into the future,” Cohen said. “Taking the right steps in 2020 and 2021 can enable GameStop to own a bigger share of the market when estimated industry sales explode to more than $200 billion per year in 2023.”
GameStop can use some of the freed up cash from these initiatives to help pay for various other, more profitable endeavors like upgrading the company’s e-commerce offerings. In turn, this could help “provide for greater revenue capture across larger gaming catalogs, digital content and community experiences, online trade-ins, streaming services, and esports.”
In closing, Cohen said he hasn’t supplied a strict or detailed “turnaround plan” in this notice because that job should be done by GameStop’s board of directors and the company’s CEO, George Sherman.
“In this spirit, we urge you to quickly provide stockholders with a credible and publicly-available roadmap for cost containment, prioritizing profitable retail locations and geographic markets, and building the e-commerce ecosystem gamers deserve,” Cohen said.
Cohen also said he is not seeking a seat on GameStop’s board of directors, and he concluded his note with one further jab at the company.
“Please be advised that RC Ventures is not interested in receiving a lone seat on GameStop’s ten-member Board. It is not enticing to become an isolated stockholder advocate on a Board that has overlooked years of digital revenue opportunities and presided over massive value destruction without assuming full accountability,” he said. “We want GameStop’s leaders to do their jobs and implement a strategy for bringing the Company into the 21st century.”
A spokesperson for GameStop told The Wall Street Journal that it has a goal of creating plan to benefit shareholders. The spokesperson also noted that it has invited Cohen to join the board of directors multiple times, but he turned it down every time.
Former Nintendo of America president Reggie Fils-Aime sits on the GameStop board of directors. Other notable members include PetSmart CEO James Symancyk, Washington Wizards co-owner Raul Fernandez, and former Crocs executive vice president Carrie Teffner.