Buyers circle GameStop as retailer continues to struggle

Private equity firms Apollo Global Management and Sycamore Partners are reportedly bidding to acquire GameStop.

That's according to a report in The Wall Street Journal, which said that a deal could be closed by mid-February.

Speculation abounds that Sycamore Partners could be looking to buy the ailing retailer, but when a deal failed to materialise in August last year its share price took a 9.9% hit.

Wedbush Securities analyst Michael Pachter told The WSJ that GameStop needs to reduce its $817 million debt, close stores, and go private.

"They've lost the interest of investors, and being public causes them to do things they might not otherwise do, like try to diversify [revenue]" he said.

Since 2015, GameStop has lost 67.45% of its market value, and although decline has slowed since then, it still moves steadily downwards.

While the company's share price is actually up 20.96% this year, it closed out 2018 down 36.77% from a January peak.

Speaking with GamesIndustry.biz at E3 last year, vice president of merchandising Eric Bright said the retailer was "looking forward to an incredible Q4".

However, according to Pachter's analysis, GameStop will post comparable sales to the year prior when it reveals figures later this month.

Baird analyst Colin Sebastian suggested that refocusing on esports could help turnaround the retailer's dire situation.

"Their strength is in their loyal customer," he told the WSJ. "They are in a challenging spot, but they have, for now, retained the vast majority of their customers. That window is not going to be open forever."

It's an idea that has already taken off in the UK, with both GAME and Currys PC World moving into the space. Although a very new venture for the latter, GAME first launched the idea back in 2016 with its Belong arenas, and now has 20 locations.

Despite its attempts to tap esports, the latest annual financial report for GAME showed stagnant revenue and a slight dip in profit.

According to CEO Martyn Gibbs, GAME stores that feature Belong arenas have seen a marked increase in retail performance, however.

He added: "So the sooner that we can add more Belongs, then we will add market share within those locations... We will still be very focused on market share, but we think the best way to build that will be on the back of Belong."

Last year, Sports Direct acquired a 50% stake in Belong, and GAME plans to have 100 locations by 2021. However, it's hard to know whether combing the powers of two ailing retailers will be enough to save either as the British high street slowly withers.

Furthermore, with the concept still unable to halt the decline of GAME after more than two years, it may be too late for GameStop to pivot.

Despite its attempts to diversify with merchandise, accessories, smartphone retail, and even acquiring streaming tech start-up Spawn Labs (since shuttered), GameStop still relies overwhelmingly on new and used game sales, which accounted for roughly 50% of its revenue in the first three quarters of 2018.

Additionally, digital accounts for an increasingly large portion of the market. Recent UK figures for example show that 80% of the £3.864 billion revenue from 2018 was digital, despite 75% of AAA sales still being physical.