Physical game sales have been on the decline for quite some time as the games industry continues its march towards a digital market, with some analysts even stating games will be all-digital by 2022. GameStop has been struggling to keep up with this market shift for quite some time and it seems that the company will continue to do so, as it reported a loss of $488 million in the third quarter of 2018 despite solid growth from hardware sales and accessories.
GameStop reported a 13.4% decline in pre-owned sales during the third quarter, which is the most integral aspect of the company's "circle of life" business model. Pre-owned sales have the highest profit margin of any game sales, so any sort of decline for the category is especially damaging for the company. However, GameStop did report a 10.4% increase in new software sales, which is a great sign for the industry as a whole.
Hardware also experienced significant growth in the third quarter, with a 12.3% increase in new hardware sales. GameStop acknowledged the increase was due to a high demand for the PS4 and Xbox One X. Accessories, which are mostly comprised of headsets and controllers, also experienced growth, with a 32.3% increase in total sales.
However, even the strong growth in multiple categories couldn't save GameStop from a sizeable net income loss of $488 million. It's more bad news for the company, which has had rumors of a potential buyout circulating for quite some time. GameStop has begun to pivot its sales strategy by dedicating more shelf-space to collectibles, but only time will tell if it is effective enough to stop the company from hemorrhaging money.
Even though GameStop is losing money, not all of the information released in its Q3 results are bad. The growth of hardware and software sales means that more people are buying and playing games, which is a good sign for the industry's future. October, in particular, was a massive period of growth for the industry according to the NPD group, which is responsible for tracking industry trends. The group reported a 73% growth in year-over-year sales in October thanks to behemoth games like Red Dead Redemption 2 and Black Ops 4. The future may not be so bright for GameStop, but it certainly is for games themselves.