Physical games sales have been declining for quite some time as the gaming industry continues on its path to a digital marketplace. Some analysts even state that games will be fully digital by 2022. GameStop has been struggling with this market change for quite some time, and the company seems to continue to do so as it lost $ 488 million in the third quarter of 2018, despite solid growth from hardware and accessory sales.
GameStop saw a decline in second-hand sales of 13.4% in the third quarter. This is the most important aspect of the company's "Circle of Life" business model. Used sales have the highest profit margin of all game sales, so any drop in the category is particularly damaging to the business. However, GameStop saw a 10.4% increase in new software, which is a good sign for the industry as a whole.
Hardware also posted significant growth in the third quarter with an increase of 12.3% in new hardware sales. GameStop acknowledged that the increase was driven by strong demand for PS4 and Xbox One X. Accessories, which mainly consist of headsets and controllers, were also able to increase their total revenue by 32.3%.
Even the strong growth in several categories did not save GameStop from a significant net income loss of $ 488 million. This is rather bad news for the company, which has been circulating rumors of a potential buyout for quite some time. GameStop has begun to revitalize its sales strategy by providing more storage space for collectibles, but only time will tell if it's effective enough to stop the company from hemorrhaging.
Although GameStop loses money, not all information published in the Q3 results is bad. The growth in hardware and software sales means that more and more people are buying and playing games, which is a good sign of the future of the industry. According to the NPD group, which is responsible for following industry trends, October was a year of tremendous growth, especially for the industry. The group posted 73% revenue growth in October, thanks to giant games like Red Dead Redemption 2 and Black Ops 4. The future might not be so nice GameStop, but it certainly is for Games yourself.