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Chewy Inc. co-founder Ryan Cohen, who holds a nearly 10% stake in GameStop through his investment firm RC Ventures LLC, is pushing the company to conduct a strategic review after he says private talks with the board yielded little progress. Mr. Cohen, who first disclosed a position in GameStop in August, holds a stake valued at roughly $79 million based on current trading levels.
In a letter sent Monday to the company’s board, Mr. Cohen said GameStop’s bricks-and-mortar-centric business model is outdated and lags behind the broader industry. He is urging the company to reduce the number of physical stores, focus on improving e-commerce and explore other tech-driven opportunities in areas such as esports, mobile gaming and game streaming.
Based in Grapevine, Texas, GameStop is “one of the most shorted stocks in the entire market, which speaks volumes about investors’ lack of confidence in the current leadership team’s approach,” according to the letter, reviewed by The Wall Street Journal. “We want GameStop’s leaders to do their jobs and implement a strategy for bringing the Company into the 21st century.”
A GameStop representative confirmed in a statement late Monday that the company received Mr. Cohen’s letter, adding that it shares his goal of developing a plan in the best interests of all shareholders. The company said it extended multiple offers for Mr. Cohen to join the board, believing his “acumen and guidance would complement” viewpoints on the panel but he turned them down.
For more than three decades, GameStop was a go-to destination in malls and shopping centers for buying games, systems and accessories. The company has faced stronger competition from other retailers lately, including Amazon.com Inc., and customers are increasingly downloading games online instead of buying them in stores. The coronavirus pandemic has hastened that trend.
As consumer spending on gaming has more than doubled, GameStop revenue has plummeted, falling to $6.4 billion in fiscal 2019 from $9.6 billion in fiscal 2011.
The company has closed stores and halted experiments, including a failed run at bricks-and-mortar smartphone retailing. It has grappled with high executive turnover with Chief Executive George Sherman, who joined the company last year, being the fifth person to hold the position since November 2017. GameStop tried to sell itself in 2018 but early last year said it failed to secure a buyer and would continue as a stand-alone company.
GameStop now has more than 5,000 stores across 10 countries and owns Game Informer, a print and online videogame publication.
Mr. Cohen recommended ending leases at underperforming stores and closing nonessential operations in Europe and Australia to pay for tech improvements, such as revamping Gamestop’s online store, according to the letter sent to the board. Mr. Cohen, who isn’t requesting a seat on GameStop’s board, said the company needs to better leverage its reputation as a videogame specialist in the face of mounting competition from the likes of Walmart Inc. and Target Corp.
The 35-year-old Canadian-born entrepreneur has experience in tech with Chewy, an e-commerce pet-food business he co-founded and later sold for $3.35 billion to PetSmart Inc. in 2017. Chewy went public in 2019 and today has a market capitalization of nearly $26 billion.
GameStop has said it is focusing on paying down debt and growing its e-commerce operations in its turnaround effort.
The company’s share price has more than doubled since Mr. Cohen first disclosed holdings in GameStop, a position he began building in the spring, according to a person familiar with the matter.
The retailer has faced pressure from its shareholders before.
Permit Capital Enterprise Fund LP and Hestia Capital Partners LP ran a successful proxy fight and seated two representatives on the company’s board earlier this year.
Mr. Cohen said he doesn’t consider himself an activist investor and acknowledged GameStop has benefited as the health crisis has led to increased demand for videogames. The recent launch of next-generation consoles from Sony Corp. and Microsoft Corp. is expected to bolster the company’s sales this holiday season and beyond.
Sales boost aside, Mr. Cohen said it would be “faulty and shortsighted” to assume the company is in good shape for the long term, according to the letter.