Tag Archives: Retail

Hedge Fund Loses Half Its Value on GameStop Trades

Melvin Capital, the hedge fund that dug itself into a hole during the GameStop saga, extended its first-quarter losses to 49%.

The firm, founded by portfolio manager Gabe Plotkin, saw a 53% decline in January, reversed some of that loss by gaining 22% in February, but slid another 7% in March, Insider’s Bradley Saacks reported on Friday.

More here.

The GameStop mania has come with incredible trading volume and rapid price moves. Collectively, hedge funds have taken losses of over $1 billion a day at certain points:

To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis.

According to data and analytics firm S3 Partners, by 27 January short sellers had accumulated losses of more than $5 billion in 2021, including a loss of $1.6 billion on the 22 January and $917 million on 25 January.

Hedge funds seemed to have largely abandoned their positions. The percentage of GameStop stock sold short is down to 26% from over 100%. In January, it was hard to even borrow the stock at all to sell it short. Now, that’s cheap and easy to do, if you dare:

…a quick check with my broker verified that GME shares are available to borrow at 0.5% borrow rate, indicating that they are likely not in scarce supply

I expect hedge funds to pull back from shorting numerous stocks popular on Reddit, such as Palantir, AMC, etc. Losses like that may be too painful to take, no matter how good the fundamental case against those companies may be.

For more on GameStop, check out these posts:

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Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

This 21 Year Old Makes Millions Selling Products He’s Never Seen

As a teenager, Kamil Sattar knew he wanted to work in business. But he dropped out of his college’s business program during his second year when he said he realized, “I wasn’t actually learning how to do business. I was learning how to work for someone else’s business and make them money.”

His online store has pulled in $1.7 million in revenue this year alone. Sattar sells products online that he sources from manufacturers. Another company holds and ships the actual items. This is called drop shipping.

Offshoring separated manufacturing from distribution and marketing. What drop shipping is doing is separating distribution and marketing. Sattar excels in promoting products and running the online store. With drop shipping, he can do just those functions and leave the manufacturing and distribution to specialists:

Drop shippers use wholesale marketplaces like AliExpress, which is owned by Alibaba, China’s largest e-commerce site. AliExpress sells every category of goods, from apparel to luggage and yoga mats, for shockingly cheap prices. Drop shippers then identify products they think will be of interest to consumers. Once they find a product, they advertise it on platforms like Facebook and Instagram with high-quality photos and video, and if a customer bites, they handle getting the product from the supplier to the customer.

This market is growing like a weed. Drop shippers clocked $102 billion in sales in 2018 and the growth rate through 2025 is projected at 29% a year, leaving physical retail in the dust.

This makes me wonder what other aspects of the retailing experience will be unbundled and done by specialists in the future. Perhaps one company does the online promotion while another focuses on maintaining a usable, scalable website?

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Is GameStop the Next Blockbuster?

I came across an interesting article today. It drew a parallel between a dominant brick and mortar retailer of entertainment of today, GameStop, and one of yesteryear: Blockbuster:

It’s 100% obvious that over time all game software is going to be downloaded. This is the same or worse than with movies. Already, 100% of the game content on smartphones is downloaded, and the same will quickly happen to consoles and to PCs. It’s just more convenient to download something that’s 100% digital versus going out to a store to buy it.

It’s also nearly 100% obvious that the digital content channel will be controlled by specific parties. There are Apple (AAPL) and Google (GOOG) (NASDAQ:GOOGL) when it comes to smartphones, through the Apple Store and Google Play. There are the console makers when it comes to consoles. And then only in PC gaming is there something of an open market, where for now Steam is the leader, with individual publishers and Microsoft also trying to be in the running.

Given the above, GameStop’s slide into oblivion selling gaming software is a near certainty, much like Blockbuster’s was. Gaming hardware is generally amenable to being sold online (standardized, bought on price), too, and is lower margin than software. Used game trading ends with digital sales.

Hence, GameStop has this permabearish thesis on it, and this thesis is real. Even before COVID-19 hit, GameStop already was reporting near 30% declines in revenues.

More here.

So online, GameStop leads in no part of the market. One area where they do lead, re-sale of used games, is probably going away because the games will be 100% digital. Ouch.

If they want to muscle their way into the online market, they’ll have to contend with giants like Microsoft, Tencent, and Apple that can crush them for a tiny fraction of their massive profits.

Their e-commerce business is growing rapidly, but it’s hard to imagine such a financially strapped and marginal company taking on so many wealthy and digitally native competitors.

What’s more, I would expect Amazon and Netflix to make major pushes in this area to compete with Google and Apple. Both are big players in entertainment and are unlikely to neglect the vast video game market.

For more on GameStop, check out these posts:

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Photo: “Blockbuster Closing Store Front Sign Taken Down” by Dave Dugdale is licensed under CC BY-SA 2.0

GameStop Is Surging, But Are They Willing To Make Hard Changes?

GameStop Corp. shares are surging today and are currently up over 30%:

Chewy co-founder and GameStop board member Ryan Cohen is taking a bigger role, which is driving today’s gains:

GameStop Corp. shares extended their rally after the company tapped Chewy.com founder Ryan Cohen to guide its transition to an e-commerce business.

Cohen, a director at the video-game retailer, will chair a new board committee tasked with the transformation, the company said in a statement Monday, confirming an earlier report by Bloomberg News.

But GameStop is still losing hundreds of millions of dollars a year, continuing a trend that predates COVID. It has 5,000 stores that are dinosaurs in an e-commerce driven world. Formation of a committee is nice and all, but this doesn’t mean any real change right now. And certainly not enough to make a money losing, moribund company worth 30% more than it was yesterday.

Even if they decided to close all their stores tomorrow, they’d still be on the hook for years’ worth of rent. A typical commercial lease lasts 3-5 years, locking in this cash-incinerating business model for quite some time.

For more on GameStop, check out these posts:

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Photo: “GameStop” by JeepersMedia is licensed under CC BY 2.0