October 4, 2011, 4:36 PM

GameStop’s digital sales target is $1.5 billion before 2015

The computer games and hardware retailer projects $450 million in digital sales for 2011.

Bill Briggs

Senior Editor

Lead Photo

GameStop had $290 million in 2010 digital game sales.

GameStop Corp. is pulling out all the stops on its digital sales plans and expects to reach $1.5 billion by the end of 2014, company executives said during a presentation at the recent Goldman Sachs Global Retailing Conference in Boston. The company projects 2011 web sales of $450 million, chief financial officer Rob Lloyd told attendees. That e-commerce revenue total includes sales at GameStop.com and related game sites and digital downloads of coupons and codes that occur in GameStop’s network of 6,500 stores.

GameStop, a multichannel retailer of computer games and hardware and No. 113 in the Internet Retailer Top 500 Guide, had 2010 digital sales of about $290 million, Lloyd said.

The company plans to reach its sales target by expanding its PC download, casual gaming and streaming offerings. Growth in these channels will be achieved through a combination of digital sales in stores, its loyalty program and continued growth of recently acquired PC download and casual gaming companies.

“If you look at our strategy, it revolves around making and maximizing our stores and bringing digital content sales into those stores,” CEO Paul Raines said. “We've launched a PowerUp Rewards program, which is much more than a loyalty program. We're starting to call it a digital engagement program where we have over 13 million members now who engage GameStop in-store, on the web, through a digital locker at PowerUpRewards.com, through mobile apps, and through a series of touch points that drives all of our businesses.”

Digital sales growth from customers who buy new or used games is coming from an unlikely source, Raines said: physical stores. “What we saw is that consumers were coming to our store to learn about digital content,” he said. That’s because after game owners finish playing the content on a disk, many go online seeking a new level of their favorite games that also offers an opportunity to play with multiple players around the world.

That higher-level product is marketed in stores for around $14.99 and all the purchaser takes home is the receipt bearing a digital code for a Map Pack, or new game level, accessible once the gamer enters the code on GameStop.com, Raines said. For advanced gaming levels that haven’t yet rolled out, the code is placed in a customer’s digital “locker” on the PowerUp Rewards web site, which is encrypted and hosted by GameStop for every customer. GameStop didn’t break out the percentage of sales that occur on GameStop.com and its other gaming sites or specific metrics for the digital codes customers buy in stores.

To drive sales of casual games, such as Sudoku and crossword puzzles, in July 2010 GameStop purchased Kongregate.com, a casual game company whose sales are up 40% year over year, Raines said. Kongregate.com generates revenue several ways. One is through sales of in-game currency that’s required to buy more sophisticated games at higher skill levels. Currency can be bought with credit cards, a GameStop gift card or by trading in used games at a GameStop store and receiving trade credits.

Kongregate also derives sales from selling advertising space. And the site has a mobile app for Android devices.

Other acquisitions include Impulse, a PC download company, and web streaming company Spawn Labs, both announced in April.

GameStop’s current—and expected—growth is the result of an early 2009 strategic plan, Raines said. “What you're seeing us do today is the output of our board approving a series of capital investments,” he said.

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