GameStop stepping up expansion outside video games

GameStop, faced with a shrinking core business selling video games, is accelerating its effort to diversify.

The Grapevine-based company, which recently won court approval to take over 163 locations from bankrupt RadioShack, is looking for acquisitions, Chief Operating Officer Tony Bartel said Thursday after reporting fourth-quarter results. The retailer, which acquired the Spring Mobile and Simply Mac chains in 2013, is evolving into a holding company for a variety of store concepts.

“We’re exploring acquisition and partner opportunities that leverage our core competencies,” Bartel said.

GameStop is trying to stay ahead of a digital transition in video games that threatens to make its namesake stores, ubiquitous in malls for more than a decade, obsolete. With new consoles from Sony and Microsoft that don’t require discs, players can download new games and never leave their couch. GameStop executives are pivoting toward stores that sell other products, including AT&T wireless service, phones and Apple devices.

“They’re basically taking cash flow from games and investing it in this new business,” said Edward Williams, an analyst at BMO Capital Markets. “The ongoing cyclicality of the games business gets somewhat offset by an unrelated industry.”

GameStop shares (ticker: GME) declined 43 cents at $38.36 on Friday after the company reported fourth-quarter sales and profit that missed analysts’ estimates late Thursday and provided a profit forecast below expectations.

The company’s Technology Brands unit will expand by 350 to 550 stores this year, GameStop said — its current store count is 484 — while its namesake video game chain will shrink by about 3 percent.

Two of the three current Technology Brands chains offer AT&T products. The biggest, Spring Mobile, is an AT&T reseller with 361 locations. The company also operates 63 Cricket Wireless stores, selling AT&T prepaid plans, and 60 Simply Mac outlets, which offer Apple computers, phones and tablets.

GameStop plans to convert as many as 100 of its stores to Technology Brands, Bartel said on a conference call Thursday. It’s looking for similar acquisitions that will fit within GameStop, he said in an interview.

“What you’re going to see is a significant acceleration of percentage of revenue from nongaming sources,” Bartel said.

By 2019, Technology Brands sales will more than quadruple to $1.46 billion, GameStop executives projected on the call.

This story was originally published March 27, 2015 at 11:45 AM with the headline "GameStop stepping up expansion outside video games."