Cover Story: Advancing to the Next Level

With the traditional video game industry — i.e., games designed to be played on consoles in living rooms — in decline, the world's largest video game retailer, GameStop, figured it would have a lot to lose. Rather than become a dinosaur in a fading industry, however, the Grapevine, Texas-based cross-channel retailer took a series of steps to adjust its business model to remain relevant in an evolving and dynamic marketplace. Chief among those steps was a shift to providing consumers with more digital content.

While full-game digital distribution of console games isn't a viable option at the moment (adequate broadband penetration at sufficient speeds isn't available in the U.S.), opportunities do exist for digital distribution of add-on content. With that in mind, GameStop partnered with Microsoft and Sony to help it capture market share in this burgeoning business segment. Through September, GameStop's digital distribution of add-on content and digital currency unit sales were up 77 percent year-to-date.

"Ultimately, we want to connect gamers to games anywhere, anytime, on any device," says Shawn Freeman, senior vice president and general manager of digital commerce at GameStop. "As game opportunities continue to emerge on different devices and platforms — consoles, PCs, phones, Facebook — our strategy is to help gamers get connected to those games anywhere and any way they want to. There are lots of different ways people are playing games that are incremental to the games they're playing on their consoles in their living rooms."

To aid its quest to be be an omnipresent solution for gamers, last August GameStop acquired Kongregate, a social gaming destination and community for core gamers representing the fast-growing free-to-play gaming market. Kongregate currently hosts 10 million monthly players, who spend approximately 23 million hours per month on the site.

Kongregate is "a great platform for us to begin to deliver games into the mobile channel," says Freeman. Kongregate has developed a mobile-optimized version of its platform for Android phones. The majority of Kongregate's games are Flash-based, which the Android model supports. Calling it a very early but significant step for GameStop into mobile, Freeman believes the acquisition of Kongregate is just the start of the brand's work in the channel.

Channel Agnostic
At the core of GameStop's marketing strategy is providing the best retail experience possible for consumers, regardless of channel. GameStop prides itself on having store associates that are knowledgeable about the games they're selling, because in most cases they're passionate gamers themselves. With 45,000 employees scattered over 6,600 stores in 17 countries worldwide, that's no easy task.

"What I've seen, which is commendable to GameStop, is that it has this enormously successful traditional retail business," says Michael Evans, vice president of Pariveda Solutions, an IT consulting company that has worked extensively with GameStop. "It's still investing in its stores, but at the same time accelerating its efforts in being able to deliver digital content, as that becomes a bigger reality in the marketplace."

In addition to its extensive brick-and-mortar presence, GameStop has a robust e-commerce site, which was relaunched on Nov. 1. It now ranks behind only Amazon.com as the largest online game retailer, and is the fastest growing website in the gaming space, with sites in seven countries and more rollouts planned. GameStop's online sales more than doubled in the third quarter of 2010, and as of press time the site was averaging over 30 million visitors a month. Those visitors viewed over 200 million pages per month and spent an average of five minutes on the site per session.

GameStop's website frequently serves as a research tool for visitors, who take the opportunity to view a game's graphics via on-site video, check the availability of a game, link to Kongregate for the opportunity to try a game for free, among other tasks. But ultimately the majority of GameStop's sales are captured in-store. With this information in mind, GameStop simplified the process for its customers by launching a buy online, pick up in-store program. PickUp@Store launched in November of last year.

"We look at pick up in-store as not only about creating a better multichannel retail experience, but as another initial step for us in fulfilling our digital business strategy," notes Freeman. "Creating integration across channels allows our customers to shop and buy where and how they want."

Loyalty Yields Data
GameStop was busy in the fall of last year: In addition to the launch of PickUp@Store, the retailer debuted its PowerUp Rewards loyalty program in October. Consumers sign up for the free program at their local GameStop store and get a membership card to start accumulating points. Rewards points are earned through purchases or by trading in used games or systems. The points can then be spent on GameStop's PowerUp rewards catalog, which can be found on the retailer's website.

The loyalty program has proven both quite popular with GameStop's customers and profitable for the brand. Loyalty members are shopping with GameStop three times more often than nonmembers, and now account for 10 percent of all GameStop.com purchases. They're also activating their membership by building game libraries on GameStop's site (which now has over 20 million games in its libraries), allowing the retailer to market and recommend games to those customers in unique ways.

In addition to the financial benefits offered by its PowerUp Rewards program, GameStop has been pleasantly surprised with the amount of actionable customer data the endeavor has yielded.

"The great thing about our loyalty program is it gives us a lot of cross-channel insight into what our customers are doing," notes Freeman. "Not just asking them what they're doing, but being able to gather the actual data. They're using a loyalty number as they interact with us across all channels, so we get a ton of insight into cross-channel behavior.

"Also, within that loyalty program there are opportunities for consumers to tell us more about themselves. They can set up their profiles, give us demographic information, their game library. One of the things we incentivize customers to do is share with us what games they own or they've been playing. As they continue to purchase and show interest in other games, we can continue to build upon that."

A Social Community
With over 1.5 million Facebook fans, 73,000 Twitter followers and its own YouTube channel, GameStop has established itself on the various social media platforms. It may not have had a choice. The gaming community is a highly engaged one, says Freeman, driven in large part by word-of-mouth.

"If you spend a little bit of time on our Facebook page and look at the number of comments on every sort of posting … it's a highly engaged audience," Freeman says. "We see this in our brick-and-mortar stores, too. Gamers are very passionate about games. They like to share information, share recommendations. We get a tremendous amount of reviews on our site; lots of feedback from our customers."

GameStop uses social media for two distinct purposes, Freeman says: branding — e.g., making consumers aware of programs in its brick-and-mortar stores, announcing new titles, giving fans early insight into games that haven't yet been released; and driving sales. Facebook is now the third ranked driver of traffic to GameStop's website, and the retailer is looking into extending e-commerce functionality to the social media platform.

Using Video to Engage
Used to promote every game it sells, video is critical to GameStop's success. Inherent in selling games, both online and in-store, is the ability to show prospects what they're buying. GameStop's website therefore is loaded with as much video as possible, and its brick-and-mortar stores have GameStop TV, the brand's private channel that delivers content to shoppers. In addition, GameStop recently launched kiosks in its stores that serve as interactive guides. Shoppers can walk up to the touch-screen kiosks and view trailers and get other information about games.

"The key metrics of our site look much more like a media site than an e-commerce site," says Freeman. "If you look at page session times, page views per session and those types of metrics, we look much more like a media site. In many ways, that's the way our customers use our site. A lot of visitors come to our site to view a screen shot, read up on games, read reviews, watch the trailers, then they ultimately buy in our stores."

That behavior illustrates the cross-channel nature of GameStop's business. With up to 350 new stores planned to open this year, profits up 4.8 percent in last year's fiscal third quarter and fourth quarter forecasts calling for a 2 percent to 4 percent increase in same-store sales, GameStop's business is a model for all cross-channel retailers to follow.