I walked past a local GameStop (NYSE:GME) store this past weekend. I have to say that if Ryan Cohen — the company’s so-called retail savior and genius — is so brilliant, the first thing he ought to do to keep GME stock moving higher is to shut down its retail locations.
They are an embarrassment to good retailers everywhere. The stores remind me of Showcase, a Canadian retail chain that bills itself as the “Home of the Hottest Trends.” Its stores look like a 12-year-old designed them. They have the renovation budgets to prove it.
In August 2021, I suggested that speculative investors take a shot at GameStop shares. At the time, they were trading at $150. To be clear, I wasn’t suggesting I liked the stock or would consider buying it. I just thought its rebrand of EB Games in Canada to the GameStop banner showed it was preparing to deliver the omnichannel experience. That’s the only way to go.
However, five months later, the retail locations appear to be a total mess. Maybe gamers like to shop in sloppy conditions. I don’t know. But before I condemn GameStop stores to the dustbin of history, let’s consider what the stores mean to their overall future. Maybe Cohen needs them; perhaps he doesn’t.
GME Stock and Cohen’s Grand Plan
Before I get into it, I’m writing about this because of a recent New York Post article about the new film GameStop: Rise of the Players. The movie looks at the company’s wild ride over the past year.
One quote from the Post’s article caught my attention:
“Cohen — who was confident that his old startup Chewy would have succeeded selling any product — was quick to jump on the front line of GME by holding one-on-one Zoom calls with investors.”
This caught my eye because Cohen supposedly believes Chewy (NYSE:CHWY) would have succeeded no matter what it was selling. Some will suggest Chewy’s customer service made it a success. That’s probably true to a certain extent. You don’t win online without excellent customer service.
However, Chewy sells pet food and other pet products. That’s an industry that’s been on fire for years. In the past, I’ve pointed out that Chewy has yet to make money for an entire fiscal year since its launch in 2011.
A year ago, I suggested Cohen sold Chewy to PetSmart for $3.35 billion in 2017 before proving that the online business could consistently make money. At the time, CHWY stock was trading around $110. Today, it’s under $45. If not for analyst support, its share price would likely have fallen further as its short interest crept above 25%.
In September 2021, Chewy reported disappointing second-quarter 2021 results. In December, Chewy reported a Q3 2021 loss of $32.2 million. While Chewy grew its third-quarter sales by 24% over last year, it’s been a decade with no profits.
So, to get GameStop out of its predicament, Cohen hired Kelli Durkin as GameStop’s head of customer service in March 2021. Durkin was Vice President of Customer Service at Chewy between June 2015 and November 2019. They have a work history. That makes sense.
Omnichannel Includes Brick-and-Mortar
How’s GameStop doing on the sales front? Not too bad.
Sales were $1.3 billion in the third quarter, 29.1% higher than a year earlier. Except for Australia, all of its geographic regions grew sales year-over-year. However, the company stopped reporting same-store sales numbers in March 2021, so we don’t know how the brick-and-mortar stores performed in 2021.
What we do know is that the company’s e-commerce sales accounted for 34% of its revenue in Q4 2020. It hasn’t reported this metric since. The company would like investors to believe revealing net sales is good enough transparency. The biggest downer in Q3 2021 was a $105.4 million loss, almost six times its loss in Q3 2020.
Here’s what CEO Matthew Furlong had to say about the quarter:
“We continue to see a customer-first culture taking hold throughout our stores, fulfillment centers and corporate offices … Maintaining this emphasis on the customer will remain key as we work to grow across categories and new areas.”
Well, if its store in the Halifax Shopping Centre is any indication, he’s talking about e-commerce customer service, because in-store customer service includes making its locations an attractive place to shop. But, unfortunately, it is not close to that.
The Bottom Line on GME Stock
The hardest part about closing its stores, other than negotiating its way out of leases, is to figure out how to sell collectibles exclusively online. I’m not a collector, but I would imagine it helps to see them up close and personal.
That said, the company’s customer base is very comfortable with technology. So, whatever GameStop chooses to do on the technology front, I’m sure they’d play along. Except for trading physical copies of video games, I’m not sure it needs a physical network of stores.
GameStop could take its store budgets and move this money into marketing, advertising and e-commerce. But, from where I sit, if Ryan Cohen is to be successful long-term, he needs to ditch the stores. Unless, of course, the company plans to use the stores as localized fulfillment.
I continue to have my doubts the so-called genius can make this work — with or without the brick-and-mortar stores.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.