(Bloomberg) — Ryan Cohen, the entrepreneur who built Chewy.com into a pet-supply giant and sold it for more than $3 billion, is now pitching GameStop Corp. on a lofty goal: becoming a true competitor to Amazon.com Inc., according to a person familiar with the matter.
After acquiring a nearly 10% stake in GameStop — making him the video-game retailer’s biggest individual investor — Cohen disclosed on Monday that he is holding talks with management and several board members. Cohen’s firm, RC Ventures, has expressed willingness to get more involved with the company in order “to produce the best results for all shareholders,” according to a filing.
Cohen’s vision, which isn’t yet public, is to broaden GameStop’s online selection and compete head-to-head with some of the biggest e-commerce companies, according to the person. Rather than just offering video games and a smattering of toys, clothing and accessories, GameStop’s website would sell a wide range of merchandise and ship it to customers more quickly — a key strength of Amazon.
Of course, challenging Amazon directly would be an uphill fight. Despite relentless competition from traditional retailers and startups, Amazon has only increased its share of the e-commerce industry, and that trend is expected to continue, according to EMarketer Inc.
Amazon has a market valuation of almost $1.5 trillion, compared with $570 million for GameStop.
But Cohen does have a track record. He co-founded Chewy and served as its chief executive officer, then sold it in 2017 to PetSmart Inc. Its product selection is one of the e-commerce site’s selling points: Chewy offers items ranging from dog pajamas to parrot popcorn to saddles for horses.
The investor wants that same kind of variety at GameStop, according to the person, who asked not to be identified because the proposals are private. He also wants the company to improve its customer service and build the infrastructure needed to offer thousands of items and services,
Part of Cohen’s plan would be to offer more online services, the person said. For instance, customers should be able to trade in old video games online — rather than just in stores. And GameStop could offer more game-streaming subscriptions.
The hope is to avoid the fate of Blockbuster Video, which was pushed into oblivion by Netflix Inc., and become an online destination for everything from tech toys to tennis rackets. The physical stores would be less of a focus, though profitable locations would remain open.
It’s not clear if GameStop management will implement Cohen’s proposals. The retailer didn’t respond to requests for comment. RC Ventures declined to comment.
The company is already shuttering hundreds of its stores, but it remains a massive brick-and-mortar chain. As of last quarter, the Grapevine, Texas-based company had 5,122 locations in 10 countries. Sales in the last fiscal year fell 22% to $6.47 billion.
The good news for GameStop, and investors like Cohen, is the company has a rare tailwind right now: a console upgrade cycle. New versions of Microsoft Corp.’s Xbox and Sony Corp.’s PlayStation are coming out this year, and that’s brought a stock rally in 2020 after six straight years of declines. GameStop shares have climbed 44% this year, and Cohen’s filings on Monday gave them an extra boost in late trading.
The new Microsoft and Sony gaming consoles have disc drives, which means many consumers will still be buying physical media for them — a boon for GameStop.
But many challenges remain, including figuring out how many physical stores GameStop needs to have. And efforts to diversify its offerings have failed in the past. It acquired a chain of AT&T Inc. wireless stores in one such attempt, only to reverse course and sell the business a few years ago.
The company is expected to post its third straight net loss this fiscal year and — even with a holiday bump from video-game consoles — overall revenue is predicted to be down 14%. Covid-19 has taken a toll on its physical stores, many of which closed temporarily during lockdowns.
The task of overhauling GameStop falls to George Sherman, a retail veteran who was named CEO last year after attempts to sell the company failed. His most immediate task is cutting costs and shutting locations. He said on a conference call this month that GameStop expects to close 400 to 450 stores this fiscal year — a process the company calls “de-densification.” A little bit under 40% of lost sales from closed stores tend to go either to neighboring locations or online, Sherman said.
But GameStop can’t just shrink its way to prosperity, and so the online strategy is key — something Sherman acknowledged on the call. The company is launching a new mobile app for gaming enthusiasts, and it expects e-commerce sales to top $1 billion in 2020.
“We see this as critical to our future,” he said.