Despite a challenging fiscal 2016, GameStop’s PowerUp Rewards loyalty program continues to be an invaluable asset.

“GameStop has an extensive loyalty CRM program known as PowerUp Rewards,” GameStop CEO Paul Raines said during the company’s recent fourth-quarter earnings call. “In 2016, our PowerUp members drove 71 percent of our sales volume in the United States, so they are very important to us.”

What’s more, Raines noted, PowerUp Rewards members spend roughly six times more than nonmembers, and three times more than basic members.

“We have recently strengthened our PowerUp Pro program with ritual rewards,” Raines said. “As a result, we grew our membership based in 2016 and they are rewarding us with greater frequency and larger average purchases. Historically, growth in PowerUp Rewards brings us great benefits and, if you are a PowerUp Pro member, you know that the pro-gaming pass pro-days and exclusive offers are a few examples of new value for your membership.”

But, 2016 was a more challenging year than GameStop officials forecast.

“We encountered stiff headwinds as we completed the third year of the console cycle,” Raines said.
As a result, the physical games category declined 15 percent and GameStop brand lost a “small amount” of market share during the holiday period due to deep discounting.

“Our internal model, which aggregates PwC, DSC and IDG, forecast only a 5 percent decline even as latest September,” Raines said. “Experts were still expecting a 5 percent decline for the year. However, according to NPD, excluding Pokemon, the top eight physical software titles actually declined over 40 percent from October to December compared to the top eight release in the same timeframe in 2015.”

Most publishers began discounting titles much earlier than previous years, leading to a steep decline in retail pricing, Raines said.

“The 2016 holiday was also more promotional than prior ones with average hardware prices down 15 percent versus prior years,” he explained. “That decline reflected the impact of all the below-cost discounts and complimentary gift cards that we saw from Black Friday that ultimately carried through the holiday season. Console upgrades were also not as meaningful as we had hoped. Some have argued that this decline was caused by title fatigue, others have argued for a need for new consoles. And looking more broadly across the general retail spectrum it was obviously a transformational holiday season for a number of hard-line retailers.”

On a positive note, Raines talked about the company’s collectible business, “which hit the high-end of our revenue guidance at $494 million. We are spending a lot of time on the collectibles business driving global best practices, buying synergies, developing standalone collectible stores and hybrids, as well as integrating into the enterprise. We are very focused on continuing to grow this year and the availability of licenses from IP holders and movie studios will continue to support that growth. In 2017, we expect to grow our collectibles business by 30 percent to 40 percent.”

Digital is another growth segment for GameStop, with digital receipts growing 4 percent, to $1.1 billion in 2016. Growth was driven by a 20% increase in DLC and congregate sales.

“We expect to continue to be a strong participant in this area and post steady games over the long-term,” Raines added. “Collectibles is an absolute win and has great potential for future growth as we double our internal linear footage within GameStop branded stores. We expect to see continued growth along with ThinkGeek.com productivity in our websites and standalone stores. Collectibles are on track to become a $1 billion business by the end of 2019.”

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