Can Leonard Riggio, chief executive of Barnes & Noble Inc., do for video-game retailing what he has done for books?
Videogame-Aktien sollten die nächsten Jahre weiterhin outperformen.
UNBEKNOWNST TO MANY outside the gaming world, Mr. Riggio has built a mini video-game retail empire since the late 1980s, operating under a hodgepodge of names. Now, angling to take advantage of the red-hot video-game market, Barnes & Noble will put most of the stores under a single brand, GameStop Corp., and offer about a third of the company’s shares to the public, with trading expected to begin as early as Wednesday.
Starting from a base of 1,038 video-game stores — more than any other entity in the country — GameStop sells titles for personal computers and video-game consoles, as well as accessories, in every available format. The company also offers a wide array of used games that appeal to players who devote 50 or 60 hours to a title and then trade it in for the next hot game. GameStop opened about 75 new stores last year and intends to open another 150 to 200 this year. But Mr. Riggio’s attempt to create a video-game retailing behemoth has been a bit of an odyssey. The 60-year-old retailer, who opened his first New York book store in 1965 to serve college students, launched Software Etc. Stores Inc. in 1987 and then helped merge it with Babbage’s Inc. in 1994 to create NeoStar Retail Group Inc. As part of the merger, Mr. Riggio gave up control. Two years later, however, NeoStar cratered, and Mr. Riggio bought back a group of stores in bankruptcy court before selling them to Barnes & Noble. In June 2000, Barnes & Noble grabbed the final piece by purchasing video-game retailer Funco Inc., known in gaming circles for its extensive offerings of used titles.
Mr. Riggio intended to offer GameStop shares last fall, but the stock market was against him. Now his timing may be better. Nintendo Co. released the hand-held GameBoy Advance player last summer. Then, in November, Microsoft Corp. released its Xbox video-game console, and Nintendo launched its GameCube system. Meanwhile, Sony Corp. says it sold 6.6 million Sony PlayStation 2 consoles in North America in 2001. Add all the players together, and they make a formidable customer base. Shares of GameStop, Grapevine, Texas, will be listed on the New York Stock Exchange under the symbol GME. They are expected to open between $17 and $19 a share, and Barnes & Noble stands to net as much as $348 million. The company will then use $250 million to retire intercompany debt. The remainder is earmarked for working capital and general corporate purposes.
Barnes & Noble will retain voting control after the public offering. (Mr. Riggio owns 14.7 million shares of Barnes & Noble, representing 22.5% of the company’s stock. His brother, Stephen, a company vice chairman, owns 1.9 million shares, or 2.9%.) Many analysts are optimistic about the future of video retailers and say that new games coming down the pike should help GameStop. “This is a business with a five-year cycle, so most of us are betting that 2003 will be a peak year for hardware and software sales,” says James Lin, an analyst for Jefferies & Co., a unit of Jefferies Group Inc. He adds that only 32% of U.S. homes have video-game consoles so there’s probably room to grow. Market researcher NPD Group Inc. says video-game hardware, software and accessories revenue jumped 43% in 2001 to $9.4 billion, more than the $8.4 billion that movie fans spent on film tickets last year. As a result of that trend, shares of one of GameStop’s biggest rivals, Electronics Boutique Holdings Corp., West Chester, Pa., have effectively doubled in value in the past year. “Personally, I think we’re a better company because we’ve had a longer track record of success,” says Jeffrey Griffiths, chief executive of the chain, which operates 940 video-game stores. “But they don’t have any obvious weaknesses.”
The video-game business has always been fiercely competitive. It’s hit-driven, and in the case of GameStop, most of the profits come in the fourth quarter. Unlike the book-retailing business, where Mr. Riggio pioneered superstores that came to dominate a fragmented industry of mom-and-pop bookstores, the video-game retailing industry is already carved up. Wal-Mart Stores Inc., Target Corp. and Toys “R” Us Inc. are all major sellers. So, too, are the big consumer electronics chains, Circuit City Stores Inc. and Best Buy Co., which last year acquired the music retailer Musicland Stores Corp. There are also dozens of online retailers, plus the worry that as the nation develops more broadband capacity, kids will want to do much of their gaming online.
Some analysts are also concerned that because the games and hardware are available practically everywhere, video-game retailing will ultimately become price driven. “This is a generic, commodity business,” says Juli Niemann, an analyst for R.T. Jones Capital Equities Inc., based in St. Louis. She adds that people won’t stay home forever. “Tastes change,” she says. Aside from big discounters, GameStop also faces a host of scrappy rivals. “We survive because of our selection of games,” says Angel Gonzalez, who manages closely held KNP Games Inc.’s Game Express store in midtown Manhattan. “They stick to the commercial titles, but we carry a lot of the old stuff that people want, and at better prices. Their advantage is that they take a lot of preorders on hot games, which hurts. But they don’t have our inventory for PlayStation 2.” Mr. Gonzalez has a point: His store does appear to have more PlayStation 2 titles than a Software Etc. store only a few blocks away. But at 6 p.m. on a Friday night, the Software Etc. store is jammed with teen to middle-aged shoppers, lending some credence to bullish analysts’ claims that the market is broader than just kids because many who played video games in the 1970s are still enthusiasts. On a board near the cash register are the names of a dozen or more future game titles that customers can order in advance, and there is no evidence here of the recession snarling the broader retail landscape. GameStop expects to report revenue of $1.12 billion for the fiscal year ended Feb. 2, 2002, up from $757 million a year earlier, with operating earnings of about $44 million, up from about $15 million a year earlier.
Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved.
