Ryan Cohen took control of GameStop Corp. in 2021 vowing to transform the faltering videogame retailer into an e-commerce juggernaut.
Meme-stock investors loved the idea. Ordinary consumers, it turns out, did not.
E-commerce sales didn’t take off—they declined. Losses grew, and a succession of online-sales executives Mr. Cohen brought in left.
Last year, to little fanfare, the billionaire investor reversed course and slammed the brakes on the e-commerce push to refocus GameStop on its roughly 4,400 bricks-and-mortar stores. In other words, the original meme stock reverted to a business model with the mall at its center.
The company began slashing costs. It scrapped plans to build more warehouses to handle online orders, shut a new e-commerce customer-service center and cut several hundred corporate jobs created under Mr. Cohen.
On March 21, the cost-cutting allowed GameStop to record its first profit in two years, but revenue declined by 1%. Meme-stock investors were thrilled, and GameStop shares, which had declined by about 70% since Mr. Cohen took over as chairman in June 2021, surged that day by more than 40%.
Other stockholders expressed concerns that GameStop still hadn’t hit on a formula for growth. “This is a risky stock,” said Kevin Yousif of Yousif Capital Management in Bloomfield Hills, Mich., which holds a $1.3 million stake.
Some of the Grapevine, Texas, based company’s troubles stem from the same pandemic forces that hurt other retailers. Former GameStop executives and analysts said Mr. Cohen also miscalculated what its customers were willing to buy through its website and app.
Many videogamers now buy and download games directly over the internet, which has cut deeply into GameStop’s store-oriented business. Mr. Cohen’s plan was to boost the company’s online presence and expand its offerings beyond new and used videogames on discs.
In 2021 and 2022, the company cycled through a series of new products, including televisions, scooters and nonfungible tokens, or NFTs. Most fell flat.
Last year, through early December, e-commerce sales fell to less than half of what they were in the year-earlier period, according to an internal document reviewed by The Wall Street Journal. Over that period, e-commerce accounted for only about 10% of GameStop’s overall sales.
“Quarter after quarter we were unsuccessful with new ventures,” said Ted Biribin, GameStop’s former director of marketing analytics, one of dozens of employees laid off last summer. “If something didn’t work, senior leadership would go onto something else very quickly.”
Mr. Cohen and other executives declined to comment for this article. In the past, they have said it would take time to remake GameStop into a consistently profitable company.
GameStop is now back to relying more on its bricks-and-mortar stores to support its shrinking e-commerce business. It is using the stores as mini fulfillment centers, where employees package and mail online orders to local customers and customers come in to pick up their purchases.
“Our stores, in particular, are a differentiator that will help us maintain direct connectivity to customers and position us to have localized order fulfillment capabilities across more geographies,” GameStop Chief Executive Officer Matt Furlong said last year in an internal memo reviewed by the Journal.
Mr. Cohen, 37 years old, gained a reputation as a retail wunderkind by co-founding online pet-supply retailer Chewy Inc. He remains GameStop’s chairman and still owns around 11% of the company. He has invested more recently in other old-school retailers: Bed Bath & Beyond Inc. and Nordstrom Inc.
“It’s hard to turn around a brick-and-mortar retailer that’s under the kind of pressure that GameStop was and continues to be,” Mr. Cohen said late last year in an interview with GMEdd.com, a site for GameStop individual investors. “But that was also part of the attraction going into GameStop.”
He said he overcame similar challenges at Chewy, which he co-founded in his mid-20s and sold to PetSmart Inc. for $3.35 billion in 2017. “Selling 30-pound bags of pet food in the mail was also very unpopular, and we figured it out,” he said.
Mr. Cohen’s Chewy sale left him with a pile of money and the self-confidence to match. In late 2020 he bought close to 10% of GameStop’s shares, ridiculed its management and called for a complete overhaul away from what he called its outdated videogame stores.
GameStop had been struggling as people switched from buying games in boxes to downloading them from digital stores. Mr. Cohen argued that if GameStop wanted to avoid the fate of Blockbuster and Tower Records, it should bet big on e-commerce.
Meme-stock investors piled into the stock, bidding it up more than 20-fold in the early months of 2021. They aimed to punish hedge funds that were selling it short. They called their leader “Papa Cohen.”
Mr. Cohen joined GameStop’s board in January 2021 and was chairman by that June. He filled most of the board with his chosen directors.
He lured from Amazon.com Inc. a new CEO, finance chief and operating chief, and began assembling an experienced team to build a new network of warehouses and modernize operations.
Eventually, dozens of e-commerce veterans from Amazon, Chewy and online discounter Zulily LLC joined GameStop. Within months, the company revamped its mobile app and website, and it opened a new fulfillment center in York, Pa., and a customer-service facility in Florida. GameStop paid off its long-term debt using a portion of the more than $1.6 billion it raised from two stock offerings.
The company shortened online-order deliveries to two days, from four or five. In anticipation of a surge in orders, it planned a new warehouse in Reno, Nev.
In 2021, GameStop closed nearly 250 of its stores.
In an effort to appeal to a broader swath of consumers, GameStop started selling products such as beanbags, Nerf guns, smartwatches and gaming chairs. It was hoping to ride the tsunami of e-commerce spending triggered by so many people stuck at home during the pandemic.
Instead, it slammed into supply-chain issues. Christmas 2021 was the first big test of the new e-commerce model. The company had ordered shipping containers of new products for the holiday season, but many didn’t arrive in time, according to some of the former executives.
Among the new offerings that didn’t sell were televisions. GameStop was losing money on each marked-down TV it sold online. Selling large screens in its small stores wasn’t an option because they took up too much space, the former executives said.
In March 2022, GameStop reported its first-ever holiday-quarter loss and an inventory balance that had increased more than 50% from a year earlier.
The truckloads of televisions kept coming. They didn’t sell. The company ended up donating some to charities.
Reggie Fils-Aimé, a former Nintendo Co. executive who was on GameStop’s board until Mr. Cohen took over, said at the SXSW conference in March 2022 that the company had lost its way. “Go on the GameStop website, try and find a strategy,” he said. “There is no articulated strategy.”
In May 2022, GameStop hired as chief operating officer Nir Patel, a department-store veteran who had years of experience with retail turnarounds working at Kohl’s Corp., Lands’ End Inc., Target Corp. and other outlets. He replaced Jenna Owens, who had joined the retailer from Amazon in March 2021 but had left by that October.
As losses continued to grow, Mr. Cohen met that month with Mr. Furlong and instructed him to abandon the e-commerce plan, shore up cash and focus on stores, which would go back to fulfilling most online orders, according to former executives. Mr. Cohen told his management team to identify employees to lay off, the former executives said.
Last July, Mr. Furlong told corporate employees that the company, which had added more than 600 people in 2021 and early 2022 to bring its total to more than 12,000 full-time, salaried workers, was making job cuts. An internal memo reviewed by the Journal said the company needed to help “keep things simple and operate nimbly.”
Mr. Biribin, the former marketing-analytics director, was among those laid off. He said Mr. Cohen had persuaded him to leave Chewy to join GameStop. He decided he had made a poor decision when the e-commerce push ran into problems. At one point, he said, delivery bottlenecks were so bad that inventory was sometimes blocking warehouse doors.
Other GameStop executives left voluntarily last year, including the chief growth officer; vice presidents of fulfillment and supply chain systems; and the senior vice president of customer service. All had joined the company the year before.
Last July, GameStop’s board told the remaining leadership team to find ways to get out of leases on two of its warehouses, according to some former executives. Plans to open the Reno facility were scratched, and the team opted to close another warehouse in Shepherdsville, Ky.
That same month, as its e-commerce efforts struggled, GameStop launched an online marketplace for buying and selling NFTs, which are digital certificates of ownership of digital goods.
Mr. Cohen’s plan was to expand GameStop’s offerings beyond new and used videogames on discs. PHOTO: ANDREW KELLY/REUTERS
The timing was bad. Global NFT prices and trading plummeted late last year. The volume of transactions in GameStop’s NFT marketplace fell from nearly $13 million in July to about $600,000 in January, according to DappRadar, a blockchain-analytics firm.
“The mistake he made is he didn’t hire anybody from the gaming industry and he wasted time and money with NFTs,” said Jefferies Financial Group analyst Andrew Uerkwitz of Mr. Cohen. “At the end of day, gaming is going fully digital. They’re chasing a smaller and smaller consumer.”
In late August, GameStop shifted its focus back to its bricks-and-mortar roots, telling employees at its stores it planned to reward thousands of them with stock and pay raises. Mr. Cohen tweeted that day about “store leaders” with a heart emoji.
GameStop called the stores the cornerstone of its brand and said it would be using them as mini fulfillment centers for e-commerce.
In the three months through last October, GameStop recorded its seventh quarterly loss in a row. Sales of hardware and collectibles such as toys and trading cards increased from a year earlier, but sales of its core products—new and used games—fell.
GameStop has laid off more employees since December, including about 50 from the e-commerce customer-service center it shut down this month and about 20 in the department supporting its NFT business.
Last year, the company disclosed that it reduced annual expenses by more than $100 million.
After GameStop announced the recent quarterly profit, some analysts noted that the company hadn’t yet figured how to stop the slide in gaming-software sales.
Mr. Furlong didn’t address that issue, but indicated that more job cuts will come this year in Europe, where the company is looking to exit some countries.
“We are taking a number of steps in fiscal year 2023 to improve our efficiency,” he said. “We want stockholders to judge us on our results instead of our words.”
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