GameStop, Death Spirals, and the Five S’s of Retail
I don’t have anything to add to the GameStop stock talk.
However, I did spend a decade growing a retail chain to 300+ stores and watched many competitors close shop. Here’s how to spot the Five S’s of a retail death spiral:
🏬 Store
📦 Stock
🛎️ Staff
🛒 Systems
🌐 Strategy
🏬 Stores
As retail chains start to struggle, one of their first moves is to give up their most expensive leases. These are usually in the best locations and the storefronts that do the most to expose the brand to the masses and add brand value by virtue of their neighbors.
📦 Stock
Customers who enter the remaining stores will find fewer items on the shelf as the execs invest less in new inventory. The remaining goods will also likely be of lower quality as the best suppliers stop extending terms when they smell blood in the water.
🛎️ Staff
Retail workers are often seen as replaceable and treated as disposable, but there is a lively market for their skills. The best will leave once they see the aforementioned changes and trying to find replacements feels like a fool’s errand.
🛒 Systems
At the same time, all of the store’s systems fall into disrepair. Your new staff can barely log into the POS, never mind run a quality inventory process. Some tools are outright abandoned leaving decision-makers flying blind.
🌐 Strategy
As the company enters its final throes, execs grasp for a new strategy. Perhaps a pivot to ecommerce? A new store format? Unfortunately, by this point, there is little financial/human capital on hand and the focus turns to cost-saving which perpetuates the spiral.
Creating a viable new retail model is hard enough when you have the wind at your back, fully-loaded coffers, and an enthusiastic team. Trying to make a change after years of missed quarters and stagnation is next to impossible.
GameStop has had a tough decade. The industry shift to downloadable content was an existential threat. COVID crushed their hopes of building out a business centered around selling gamer paraphernalia. Shorts may feel unethical, but in this case, they were perfectly logical.
Pulling out of a death spiral is tough as the five S’s acquire momentum. Netflix managed to do it. Perhaps the energy around the stock and brand will lead to new investment, good employees will again apply, and a virtuous cycle can be kickstarted…?
Photo Credit: Grooveland Designs
