Four years ago the downfall of The GAME Group was all but unthinkable. With a share price of 296.75p (per share), an ever expanding empire and rising year-on-year profits, the future looked assured for the retail specialist.
GAME's position at the forefront of games retail was consolidated in 2007, when the company bought out their biggest rival - the Blockbuster owned franchise GameStation - effectively gaining them near-complete control of specialist gaming retail on the UK High Street.
Customers continued to flock to both franchises, and over the years many independents were driven out of business by the financial muscle that GAME was able to flex. The only companies able to convincingly compete with GAME and Gamestation were HMV and, with their considerable buying power, the supermarkets.
If GAME only had to deal with competition from fellow High Street retailers, they'd have probably been fine. But online sites like Amazon and Play have steadily chipped away at GAME's market share over the past decade. Couple this with a clear shift of emphasis towards digital sales (as publishers look to restrict money lost on GAME's 'bread and butter' - the second-hand market), and it is easy to understand why the company has struggled so much in recent months.
All of these things combined together were enough to stunt growth and slow expansion for the retailer, but it was something else that acted as the catalyst to GAME's fall from grace.
The banking crisis of 2008 brought the financial world to its knees, and the knock-on effects of it are still being keenly felt to this day. GAME's situation is, arguably, the culmination of all of the aforementioned factors combined with a global recession that has restricted the spending of a large percentage of the population.
Despite the financial crisis taking place nearly four years ago, GAME's predicament has worsened noticeably in the last year. The last year saw a considerable drop in revenue for the specialist retailer, leading the company to lose a considerable sum of money (previous estimates are that they will make a predicted loss of around £18 million in this financial year).
The warning signs were there, and in late 2011 the cracks started to become visible for everyone to see. A change in predicted profit forecasts caused a rapid drop in the company's share value (35% on the day of the announcement and 50% within a week).
It was revealed in the new year that the whole industry had seen a 13% drop in sales for 2011, but GAME felt the chill more than most, seeing a 14.7% dip in sales over the eight weeks leading up to January 7, 2012. Things were now unravelling for the retailer, and at an alarming speed.
At was at this point GAME warned that when tested on February 27, they might fall short of meeting their EBITDA covenants (earnings before interest, taxes, depreciation and amortization). To continue trading would require them to reorganise their finances, which in turn would require the renegotiation of credit agreements with their suppliers; the publishers.
At the beginning of February the rumours started. The word on the street was that GAME and Gamestation were not going to stock some big name titles (including Metal Gear Solid: HD Collection and Final Fantasy XIII-2). The rumours were denied and these games made it to stores.
A Tale of Two Shepherds
GAME's CEO Ian Shepherd was still in a bullish mood: "Our industry had an incredibly tough 2011, and so did we. We remain the market leader and have a clear strategy which will return the business to growth. We are adapting to the changing market and are well prepared for the next hardware cycle."
That next hardware cycle included the imminent launch of the PS Vita, Sony's hotly anticipated new handheld. Hopes were pinned on a resurgence in sales based around the new console, but sadly this wasn't to be. Uninspiring UK sales didn't help matters, but perhaps it was the omission of Ubisoft's PS Vita launch titles from shop shelves that was a more significant development.
Ubisoft's titles, including Rayman Origins, Asphalt Injection and Lumines, eventually made it to retail, but the damage had been done and the pattern would be repeated. The next high profile casualty of GAME's cash crisis was a major one, and their failure to stock the game in question could possibly be considered the straw that broke the camel's back.
Mass Effect 3, the story of Commander Shepard's battle with the Reapers, was the biggest game of March 2012, and a likely contender for game of the year. GAME's inability to secure the stock they would need went on to spark a chain of events that led them to eventual administration. The game wouldn't appear in stores, customers who had pre-ordered the game were forced to look elsewhere for exclusive content, and general consumer confidence was dented.
It wasn't long before a leaked memo revealed that the company had failed to agree terms with EA and that Mass Effect 3 would be one of several games that would not be stocked by the once dominant retailer. Snowboarding title SSX went on to be the last EA game to be sold by either GAME or Gamestation under the old management.
The trouble didn't stop with EA. Nintendo and Capcom swiftly followed suit and revealed that they too had been unable to come to mutually-satisfactory agreements with the company. This would mean FIFA Street, Street Fighter X Tekken and Mario Party 9 all failed to make it to sale, leaving any remaining customer confidence laying in tatters.
If GAME thought that February's 29% industry-wide dip in sales was tough, they were in for an even harder month in March.
Other companies started circling parts of the retailers international empire. Most notably reports started emerging that GameStop, the powerful American chain, had designs on cherry-picking GAME's choice overseas assets. There were rumours that a stumbling block over any deal remained in the form of the company's Australian assets. With GameStop already well represented in that corner of the planet, they reportedly refused to do business whilst the Antipodean stores remained on the table.
Speculation aside, it was clear that something drastic was going to have to be done to keep the company out of administration. The only question was whether the kind of intervention needed was going to take place before time ran out. Then, hot on the heels of the talk about overseas takeovers, came the ‘dead cat bounce'.
Reports started circulating the media that senior management had been told in a meeting with Ian Shepherd that unless things were turned around straight away, administration was the likely outcome. The stage was set; GAME had approximately two weeks to fight off their seemingly inevitable fate. The Spring Clean sale kicked off in GAME (with Gamestation doing a similar, though less obvious promotion).
The company hoped that by putting their entire stock of second-hand titles on sale at drastically reduced prices, they might be able to raise enough cash to see them through the difficult weeks ahead. Looming ominously on the horizon was the companies quarterly rent bill, and the race was on to find the finances to pay it.
Investors saw which way the wind was blowing and started cashing in their chips. On Monday 12th March, GAME's share price took a massive tumble, dropping below 1p per share. Despite a slight resurgence later in the day (the previously mentioned ‘dead cat bounce' - a sudden flutter of activity after a big drop), as opportunistic investors looked to buy in at next to nothing, the company's value still plummeted.
More titles went missing in the coming days. There was also talk of several possible takeover deals, but either there wasn't time for potential interest to firm up, or the bids made were deemed unsatisfactory. Then rumours started circulating that the company's next announcement would be that it was about to voluntarily delist itself from the stock exchange.
Later that day, GAME filed for administration, citing the fact that there was "no equity value left" in the business. By the end of the week it had been agreed that PwC (PricewaterhouseCoopers) would be the firm responsible for taking control of The GAME Group. Upon making this agreement, CEO Ian Shepherd left his position at the company. In an internal memo to staff Shepherd told employees that PwC's Mike Jarvis would: "certainly make big changes, both to the store estate and in the office, but will be doing so with a view to creating a trading business that he can attract a buyer for."
Shepherd's departure became common knowledge on the Monday morning. It didn't take long for Jarvis and PwC to make themselves visible. Before the end of their first full day in charge of the business, 277 stores in the UK and Ireland were closed down. Managers were contacted and told of their fate; those not making profit were told to empty the shop of customers, cash up and go home. In one fell swoop 2,104 people lost their jobs.
The stores that were lucky enough to stay open didn't have long to count their blessings. News of closures quickly spread and customers descended on stores to realise the credit on their loyalty and gift cards. Much to their displeasure they were informed the new management had decided to suspend credit on cards and stop refunds and exchanges, no more pre-orders were to be taken and money previously deposited would not be refunded. The company that previously dominated the second-hand market also stopped offering cash for trade-in games, and stopped accepting pre-owned hardware altogether. The emphasis was firmly placed on stopping the cash flowing out of the company.
Some staff took the news worse than others. Frustration boiled over in Ireland, where several teams staged sit-in protests in their former places of work. The staff of Monaghan's store used social networking sites to communicate with the media, where they explained that PwC had offered them no compensation or redundancy package, and that the advice offered to them was unsatisfactory.
During the week that followed there was plenty of speculation regarding the possible outcomes for the company. Several parties registered their interest. OpCapita, the parent company of retail chain Comet, was one of the likely candidates. However, their first bid for the company was rejected, even though they allegedly promised to protect the jobs of all of the companies employees.
In the end it looked like an RBS-backed consortium had sealed the deal, but a revised bid from OpCapita and the recently formed business Baker Acquisitions was made and accepted at the last minute and on April 1 the company formally came out of administration, much to the relief of all the staff that were lucky enough to keep their jobs. It's good news for customers too, because a strong retail is important to the future development of the UK industry.
There's a lot of work to do if GAME are to fully recover from the events of the past year. A new management team has been put in place, with former Gamestation managing director Martyn Gibbs returning to the company as CEO, with support coming from former Dixons COO David Hamid (who will take the role of chairman). Gibbs, Hamid and their new team have got some consumer confidence to restore, and they've got some bridges to rebuild within the industry. Thankfully there is still a future for what remains of the company, and if they can learn from their mistakes, there's no reason why they can't prosper once again.