GameStop's profit came from used games — digital distribution deleted them

GameStop was the world's largest video-game retailer, with more than 5,800 stores. Its most profitable business was not new games but used ones: it bought a finished game back from a player and resold it, often more than once, keeping the margin each time. A new game sold at a thin markup; a used game sold at a much fatter one.

That model depended on games being physical objects that changed hands. As consoles and PCs shifted to digital downloads and online stores, there was no disc to trade in and resell. The circulation of used games — GameStop's longtime stock-in-trade — began to dry up, and the high-margin part of the business shrank with it.

The numbers turned fast. In the quarter reported in September 2019, GameStop posted a $415.3 million loss, with sales down 14.3 percent from a year earlier; the quarter before, sales had fallen 13.3 percent and the stock had dropped 40 percent in a single day. The company said it would close 180 to 200 underperforming stores by the end of 2019, with more to follow, and cut staff, including almost half of Game Informer magazine.

GameStop had tried to buy its way out of the problem, acquiring the phone retailer Spring Mobile and the merchandise shop ThinkGeek, but neither replaced the disappearing used-game margin, and both were later wound down. The company that had owned the second-hand game market could not find a second act before the market itself went away.