These are rough times for GameStop (GME 6.16%) shareholders. The leading retailer specializing in video games hit another five-year low on Tuesday, tumbling after nixing its used game rental program before it even officially started and announcing that its CEO was taking a medical leave.
GameStop's PowerPass program was set to launch later this week, offering diehard gamers six months of game rentals for $60. Players could rent as many titles as they wanted in that time, but only one game could be out at a time. At the end of the six months they would be able to keep one of the rentals.
Stores began pulling promotional materials earlier this week, ahead of this weekend's official launch. A spokesperson told gamer site Kotaku that "program limitations" were identified during a shortly lived soft launch. Some employees are speculating that GameStop's outdated sales system just couldn't tackle the inventory challenges of transforming its stores into a bricks-and-mortar version of GameFly. It's a delay and not an outright cancellation of the program, but it's still embarrassing.
Image source: GameStop.
Rethinking the "Continue?" option
PowerPass seemed great on paper. GameStop stores have a wide collection of games that customers return for store credit. The chain refurbishes the discs and cartridges, reselling them at huge markups. It's a niche that offers chunkier profit margins than GameStop's new games and gear, but the pre-owned titles are often biding their time until a second lease on life.
PowerPass could've been a great way to utilize cobweb-collecting inventory, but more importantly it would've provided the struggling retailer with well-needed foot traffic. There's a buzz missing at GameStop these days. Casual gamers are fine on dirt cheap smartphone apps, and the diehard players that GameStop needs to stay in business are being wooed by digital delivery as console makers and game publishers deal directly with end users.
GameStop's latest quarter was a disappointment, as stateside stores posted negative comps and adjusted earnings were nearly cut in half. PowerPass may not have been the retailer's last chance to gain relevance, but it was the strongest arrow in Link's quiver.
The pre-owned smorgasbord isn't dead at GameStop. PowerPass is simply being delayed. However, not having the program in place now means that it won't benefit from the program's uptick in foot traffic during the telltale holiday shopping season. The brand is also that much weaker.
It certainly doesn't help that PowerPass isn't the only thing taking a break. CEO J. Paul Raines will be temporarily leaving his post to seek treatment for the reoccurrence of a medical issue that was previously disclosed. GameStop co-founder Dan DeMatteo will step in as interim helmsman.
Opportunistic investors may eye this as a time to jump on the stock. PowerPass should be back, and DeMatteo knows the company well enough to get it through the holidays. The stock's chunky payouts are pushing the yield up to a record 9.4% with the stock at its lowest level since 2012. The key now is if it can get through another quarter without disappointing investors. Until GameStop can show signs of turning things around it's investors that may want to exert their power and pass.
