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GameStop shutters 200 more stores as digital distribution redefines the gaming industry

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As digital media distribution has boomed over the past five years, retailers like GameStop that used to thrive on the sale of movies, music, and video games on little discs have aggressively tried to lure people back into brick and mortar stores. One strategy during past holidays has been to open up “flash stores,” small convenience retail operations with temporary staff meant to back up the regular stores. The times are changing, though. GameStop isn’t planning on expanding any time soon. In fact, it’s starting to shrink.

GameStop plans to close 200 stores over the next year. While it opened 123 new stores worldwide across 2012, it actually closed 156 stores during the same period. “Net for this year, we expect our total square footage to be down 1 percent,” said GameSpot representative Wendy Dominguez to GamesBeat, “The strategy over the past two years has been to slow growth during the transition period to a new console cycle.”

Since GameStop is the world’s largest dedicated video game retailer in the world, this contraction of its operations could see video game sales take a serious hit. “I think store closures will affect retail sales negatively and ultimately hardware sales,” said analyst Roger Kay of firm Endpoint Technologies Associates in that same article, “Consoles and proprietary games have already suffered from the incursion of freeware, mobile platforms, and even PC gaming.”

Will it really, though, or will the slow downsizing of GameStop’s retail operations simply go hand in hand with the steady decline of physical video game retail in total? As evidenced by the gaming industry’s sales performance between July and September, digital video game sales are rising at a dramatic rate, but not so quickly as to make up for declines in the physical retail market.

Video game consoles and mobile gaming devices are going to continue selling for some time, but there’s simply no way that hardware sales will create the kind of revenue that made GameStop the financial force it was as recently as 2008. Back then GameStop was raking in nearly $10 billion per year, with 30 percent of that revenue coming from used game sales.

GameStop may not be able to maintain a fleet of more than 6,000 stores even with a booming hardware market. Microsoft’s next Xbox, sometimes called Durango or Xbox 720, is expected to be sold for just $99 alongside a subscription fee paid to Microsoft or even a cable company like Time Warner. If the console market transitions to a subscription pay model over the next decade, GameStop may find its operations shuttered for good.