GameStop Doubles Down on AT&T
As the number of gamers who turn to digital downloads in place of physical products when buying video games continues to climb, GameStop Holding Corp. (the company that sells physical copies of video games from 6,000+ stores throughout the world) has spent the last few years attempting to diversify its product offerings and revenue base.
This month, GameStop bolstered its diversification strategy in a big way with the acquisition of three AT&T authorized retailers (Cellular World Corp., Midwest Cellular, Inc. and Red Skye Wireless, Inc.). In the process, the Texas-based company scooped up 507 additional AT&T branded storefronts, bringing the total to 1,421 for its Spring Mobile business, a huge leap from a base of 87 locations established in 2013 when GameStop acquired Spring Mobile.
The latest acquisition makes GameStop the largest AT&T authorized retailer. Throw in the fact that the company is also the largest retail distributor of Cricket Wireless prepaid products and services (through approximately 3,400 of its US GameStop locations and 70 Cricket Wireless stores) along with its 70+ Simply Mac retail stores, and the strategy seems to be playing out well, at least in terms in sheer number of US stores.
A look at the company’s financial statements also demonstrates initial positive results. In two years, GameStop mobile-and-consumer-electronics net sales (from the AT%T, Cricket and Simply Mac product lines) have more than doubled and now make up 7% of total sales.
More importantly, the mobile-and-consumer-electronics segment has a gross profit margin over 50%, equaling that of the used-game segment (the company’s largest in terms of net sales) and blowing away margins associated with new video-game hardware (9%) and software (23.7%) and video-game accessories (36.3%). Staying with the topic, gross profits for GameStop Holding Corp. as a whole increased by $142 million between FY2014 and FY2015. All but $500,000 of that increase came directly from its mobile-and-consumer-electronics sector, essentially making the year for GameStop. A short term win for what the company is betting will be a solid long-term diversification strategy.