What GameStop is Showing IT

Last week, GameStop reported earnings for its most recent fiscal year - - showing revenue growth of 33 percent and a 82 percent increase in net earnings. And 2008, said CEO Richard Fontaine, looks even rosier.

So with cascading news stories about how troubled the U.S. economy is looking, how is GameStop able to stand out? After all, gaming isn't a bread-and-water industry; customers don't have to buy the product. But they'll pay consistently if they perceive they're getting value.

GameStop has 4,000 retail locations that sell games ranging from World of Warcraft to Call of Duty 4 to Guitar Hero 3 to Super Mario Galaxy. In reviewing the company's earnings statement and remarks by GameStop executives to financial analysts, a few threads run through the company's success that IT executives may want to take away:

Platform diversity counts. GameStop is making bets on multiple hardware platforms, and the combination is leading to a big payoff. Fontaine told analysts: ". . . (Q)uite simply, there's never been more console choices and they are all doing well. Indeed, the six (major gaming) platforms were all represented in our top 20 sales last week and it's not just the Wii and DS, the Xbox 360, the PS3, the PS2, the PSP, and even the PC, but there are a multiplicity of buying choices to be made within each platform."

Pricing is important, but it's not make-or-break important. GameStop executives say some hardware prices continue to drop, and they expect that to continue. But on the software side - - the actual games that are sold - - prices are holding up. Daniel DeMatteo, GameStop's chief operating officer, told analysts "Yes, we are seeing new game prices absolutely holding up on all platforms, as they did last year. So the customer acceptance of the $59.99 price point on the PS3 and 360 and the $49.99 on the Wii have held."

Better performance and new technology drive growth. The IT market's experience with Microsoft's Vista and Vista SP1 have been so sour that it's possible to forget that innovation and performance improvements, for the most part, drive growth. GameStop executives said that's clearly the case with migration to Blu-ray and HD, as well as creativity with the actual games and consoles themselves.

Success doesn't mean you should stand still. GameStop will spend $175 million this year on capital improvements, including opening new stores, creating "power" stores and upgrading its Point-of-Sale infrastructure. In a weak economy, it would be understandable to act with restraint, but GameStop appears to see its opportunity for success both in the long term as well as the immediate future and its executives say they will invest accordingly.

Now there are important distinctions to be made between GameStop's market with gamers and enthusiasts and the IT market at large. For starters, individuals have more control over their discretionary spending than many businesses - - small, mid-sized or large. Throw investors into the mix for a company with an IT budget, and that complicates it even more. Gamers and enthusiasts are also more likely to take a chance on new technology because disruption is far less of a concern with them than with, say, an enterprise that runs 500 desktops and a data center. But on the other side, gamers and enthusiasts can be demanding and vocal and passionate in ways many CIOs aren't. (Imagine if Vista was targeted at gamers and enthusiasts?)

Overall, though, GameStop seems to have found the secret sauce to keep the company wrapped in success by delivering technology at a time when gloom, doom and naysayers have dominated the discussion over the economy. The company has to be doing something right.