GameStop 2005 Annual Report Download - page 15

generated in the first few days and weeks following its release. As the world’s largest retailer of video game products
and PC entertainment software, with a proven capability to distribute new releases to our customers quickly, we
believe that we regularly receive a disproportionately large allocation of popular new video game products and PC
entertainment software. On a daily basis, we actively monitor sales trends, customer reservations and store manager
feedback to ensure a high in-stock position for each store. To assure our customers immediate access to new
releases, we offer our customers the opportunity to pre-order products in our stores or through our web site prior to
their release.
Investing in our Information Systems and Distribution Capabilities. We employ sophisticated and fully-
integrated inventory management, store-level point of sale and financial systems and state-of-the-art distribution
facilities. These systems enable us to maximize the efficiency of the flow of over 5,000 SKUs, improve store
efficiency, optimize store in-stock positions and carry a broad selection of inventory. Our proprietary inventory
management system enables us to maximize sales of new release titles and avoid markdowns as titles mature and
utilizes electronic point-of-sale equipment that provides corporate headquarters with daily information regarding
store-level sales and available inventory levels to automatically generate replenishment shipments to each store at
least twice a week. In addition, our highly-customized inventory management system allows us to actively manage
the pricing and product availability of our used video game products across our store base and to reallocate our
inventory as necessary. Our systems enable each store to carry a merchandise assortment uniquely tailored to its
own sales mix and customer needs. Our ability to react quickly to consumer purchasing trends has resulted in a
target mix of inventory, reduced shipping and handling costs for overstocks and reduced our need to discount
products.
Growth Strategy
New Store Expansion. We intend to continue to open new stores in our targeted markets. Historical
GameStop opened 338 new stores in the fiscal year ended January 29, 2005 (“fiscal 2004”) and 221 new stores
in the fiscal year ended January 28, 2006 (“fiscal 2005”), prior to the consummation of the mergers on October 8,
2005. EB opened 415 stores in fiscal 2005, prior to the consummation of the mergers. Between the consummation of
the mergers and the end of fiscal 2005, we opened 156 stores. We plan to open approximately 400 new stores in the
fiscal year ending February 3, 2007 (“fiscal 2006”). Our primary growth vehicles will be the expansion of our strip
center store base in the United States and the expansion of our international store base. Our strategy within the
U.S. is to open strip center stores in targeted major metropolitan markets and in regional shopping centers in tertiary
markets. Our international strategy is to continue our expansion in Europe and to continue to open stores in
advantageous markets and locations in Canada and Australia. We analyze each market relative to target population
and other demographic indices, real estate availability, competitive factors and past operating history, if available.
In some cases, these new stores may adversely impact sales at existing stores.
Increase Comparable Store Sales. We plan to increase our comparable store sales by capitalizing on the
growth in the video game industry, expanding our sales of used video game products and increasing awareness of
the GameStop name.
•Capitalize on Growth in Demand. Our sales of new video game software and used video game products
grew by approximately 20% and 27%, respectively, in fiscal 2004 and, due primarily to the mergers, by an
additional 60% and 58%, respectively, in fiscal 2005. In fiscal 2004, our comparable store sales increased
1.7%, driven in large measure by the success of Sony PlayStation 2, Microsoft Xbox, Nintendo GameCube
and Nintendo DS, which was launched in November 2004. During fiscal 2004, we capitalized on the growth
in demand for video game software and accessories that followed the increases in the installed hardware base
of these four video game platforms. Comparable store sales on a pro forma basis for Historical GameStop
and EB decreased 1.4% in fiscal 2005, due to soft demand leading up to the launch of the Microsoft Xbox
360 in November 2005. Despite limited supplies of the Microsoft Xbox 360, we capitalized on the demand
for video game software and accessories that followed that launch and the launch in March 2005 of the Sony
PlayStation Portable. Over the next few years, we expect to continue to capitalize on the increasing installed
base for these platforms and the expected release in late 2006 of the Sony PlayStation 3 and the Nintendo
Revolution and the related growth in video game software and accessories sales.
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