"Robert Singers" <rsingers DeleteThis @finger.hotmail.com> wrote in message
news:Xns9811BED8F3C9Ersingers@IP-Hidden...
> Between saving the world and having a spot of tea Ty said
> [snip]
>> If I were GW, I'd sell every single one of those GW stores to local
>> owners. Even if you sold them at fire sale prices, they'd have to net
>> $8 million or so. GW would retain its market, but would wipe out an
>> unprofitable boondoggle that has infuriated half their distribution
>> chain.
> Not quite. IMO they should have a handful of 'MegaStores' in locations
> where people generally visit when holidaying. Make it an experience with
> a
> huge range and bitz for sale. The rest get rid of.
Hey Robert.
Well, I suspect that even their "megastores" make little profit. After all,
they have more employees, higher leases, etc. Even if they are profitable,
they could be sold for desparately needed cash and GW would still get most
of the profit anyway by selling to them.
And why piss off 50%+ of your distribution chain for chump change?
Don't worry; the odds of GW abandoning their retail chain are about the same
as me moving to Aruba with a harem of Victoria's Secret supermodels. There's
way too much corporate ego -- and money -- tied up there. In addition, even
if the CEO and Board had a sudden significant increase in business acumen,
they *still* could not make it happen in any reasonable time frame. The
reason is that the CEO would have to rely on his underlings to make it
happen. And most of them would fight him tooth and nail. The reason is that
80% of GW's staff is in the retail division or provides direct support to
it. In public companies, individual executives are largely judged on the
size of their departments, not on anything as blase as economic performance.
The management team as a whole is judged by the stock price. Not an
unreasonable standard -- if stock price is a reasonable proxy for
performance. In GW's case, it won't be if current trends are not only halted
but dramatically reversed. But the point is that people respond to the
incentives they're faced with. It is little comfort to the head of the
retail division that GW is staggeringly profitable if he's out of a job, or
relegated to a minor status. Hence the phenomenon known as the "golden
parachute".
The head of the retail division (and his political allies) would not be keen
on wiping out his division. Accounting and legal would oppose it, since they
probably spend 80% of their time and energy on supporting retail. As would
IT, marketing, you name it. The only allies the CEO would have are the
manufacturing division. And even they might be lukewarm, since eliminating
the retail line would probably cause a short term disruption in orders,
which would require economies in manufacturing as well. Even the
shareholders would probably be uneasy, since the stock market usually
rewards gross sales more than anything else.
GW is like the guy that has the tiger by the tail. They cannot expand the
retail division much further because (a) it's too expensive and they lack
the cash; and (b) it will erode their remaining support among local
retailers, which is critical for GW to stay afloat. There's also the problem
that most of the Board enthusiastically supported the retail chains. Selling
them off would confirm that they were fools. The strategy was fundamentally
defective from the start. The only advantage chains have over locals are
pricing and selection. GW's retail chain has neither advantage over a
comparable sized game store. I'll bet the shareholders would love to have
that $80 million in cash today. That alone would probably drive the stock
price up 40%.
I think that my strategy would require either a hostile takeover or a
complete purge of upper management. Both of which are unlikely, IMHO, at
least now. But if that stock price plunges down to 50p a share, I think that
a takeover would be a very smart move for an investor who knew how to fix
the problems (and who had his own management team). If current trends
continue, GW will be insolvent within 18 months. Sooner if they do what I
suspect they're gonna do -- dramatically increase internet marketing by
offering discounts or free shipping, and cut the dealer discount again. Such
moves would infuriate many local hobby stores. The volume and percentage of
sales from local hobby stores would decline even more than it already has.
On the heels of the latest ~20% price increase, this would effectively
destroy GW's market.
I'd suggest that folks who complain about GW's "greed" consider the fact
that GW's overall profits have not been scandalously high -- 13% in their
very best year. Nor is management and director compensation out of line with
similar sized companies. The problem is that GW is needlessly inefficient
due to its bizarre obsession with dominating the retail market. So GW
continually raises prices and their customers pay for the inefficiency.
Unfortunately, they appear to have *finally* gone too far. As noted, in the
last 2 years, they've raised prices an average of at least 20% (and cut the
discount to hobby stores). Yet sales have declined 30%. It's hard to see how
further increases in prices will help them.
The tragedy is that if my numbers and assumptions are reasonably accurate,
GW could make a scandalous profit *and* cut prices dramatically. All they
have to do is get rid of that boat anchor that's tied round their neck --
the retail division.
--Ty
>> Stay informed about: GW sales down