GameStop is suffering from a growing consumer trend

GameStop (GME) faces major headwinds amid a popular trend that is increasingly eating into its profits.

The retailer just reported in its second-quarter 2024 earnings report that sales took a major hit as more consumers ditch physical games for ones they can download digitally on video game consoles.

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In the report, GameStop revealed that its net sales during the quarter were down about 31% compared to the same period last year. Specifically, hardware and accessory sales fell by about 24%, while software sales experienced a bigger decline, falling by about 47%.

Overall, GameStop made a gross profit of $248 million during the quarter, which is down about 19% from what it earned in the second quarter of 2023.

Since the earnings report was released, GameStop’s stock price has fallen about 18%, now trading at about $20 per share.

In a 10-Q filing with the U.S. Securities and Exchange Commission on Sept. 10, GameStop warned that, amid declining sales, it is undergoing a “new phase of transformation” that will involve closing brick-and-mortar stores in the near future.

Customers walk into a GameStop store on December 08, 2021 in San Rafael, California.

Justin Sullivan/Getty Images

“We have also initiated a comprehensive store portfolio optimization review, which involves identifying stores for closure based on many factors, including an assessment of current market conditions and individual store performance,” GameStop said in the filing. “While this review is ongoing and no specific set of stores has been identified for closure, we anticipate that it could result in a greater number of store closures than we have closed in the past few years.”

GameStop has approximately 4,100 retail locations worldwide, of which approximately 2,915 are located in the United States.

As of last month, the Grapevine, Texas-based group had 16,000 employees globally, about half of them full-time.

Related: GameStop CEO mulls tough decision after earnings surprise

GameStop is warning of a major shift in consumer behavior

GameStop’s dismal report comes after it disclosed in a 10-K filing with the SEC in February that digital video game downloads had a negative impact on its business.

“Downloading video game content to current-generation video game systems continues to grow and take an increasing percentage of new video game sales,” GameStop said in its 10-K filing. “If consumer preference for downloading video game content over physical software continues to increase, our business and financial performance may be adversely affected.”

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GameStop also disclosed in its 10-K filing that it has cut thousands of employees from its workforce in an effort to “achieve profitability.”

As GameStop struggles, the video game industry continues to grow financially in the US. According to a recent analysis by professional services firm Pwc, gaming in the US is considered the “fastest growing large sector” in the entertainment and media industry. Pwc estimates that US gaming revenue will reach $300 billion in 2028, which is more than double what it generated in 2019.

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