Even if you were not one of the beneficiaries of the skyrocketing price of GameStop caused by Reddit traders, you had to be intrigued by the power of thousands of small investors that beat the hedge fund managers. The phenomenon caused a share of GameStop stock – worth $18 at the beginning of January to surge as high as $450 4 weeks later. All this occurred without a change in the underlying performance of a store-based retailer that has yet to successfully embrace digital transformation.
Instead, the escalation of the stock price was the result of an increasingly large community of amateur investors that wanted to disrupt funds that had bet against GameStop. Representing 140% of the total outstanding shares, GameStop was the market’s most shorted stock. As the stock rose, many of the short-sellers had to buy more shares to cover their positions, resulting in an ever more accelerated rise in price.
Beyond a fascinating story to watch unfold, are there lessons for the banking industry to learn?
Blockbuster Revisited? – Future of Physical Stores
GameStop is a company that many investors had walked away from quite a while ago, as the firm closed hundreds of stores and failed to respond aggressively to the online retail giants – such as Amazon and Walmart – who now dominate game sales. Similar to many traditional retailers, the company has tried to revamp its business, expanding into new product lines and building a digital offering. But, despite some positive impact of new game introductions, revenue is still projected to decline by as much as 20% this fiscal year.
As with all brick and mortar businesses, COVID hasn’t helped the prospects for fiscal improvement. And, as more games are offered directly online, the need for physical proximity diminishes. Many see GameStop as an updated version of the Blockbuster case study, where a much more digitally focused Netflix resulted in the demise of the video store giant.
But there may be a difference between Blockbuster and GameStop. There is still a market (albeit shrinking) for consoles and physical games that are carried by GameStop. And the expansion into carrying a broader line of products helps generate some traffic. Finally, many gamers still use GameStop as a place to trade games and have interaction with other gamers.
The question becomes, is the pivot large enough and fast enough?
This is the same challenge faced by traditional banks and credit unions. While branches are definitely staffed by skilled employees who can help customers navigate the buying and using of financial services, would the vast majority of consumers prefer to do their shopping and buying digitally?
And even if a traditional bank or credit union enables a consumer to open a new account or apply for a loan digitally, is the process as easy and frictionless as it is with a digital-first alternative such as Chime, Acorns, Rocket Mortgage, Apple or another agile fintech or big tech firm? With most consumers opting for the best possible experience when making a purchase regardless of channel, has the pandemic made the definition of ‘experience’ more about speed and simplicity than the human interaction?
The Uprising of a ‘Community’
The GameStop saga was the result of a very, very large community coordinating the purchase of stock to drive up the price. Momentum grew as it became clear that this effort would mostly impact elite brokerages that were viewed as the ‘enemy’. The impact of the underdog was felt almost instantly because of the combination of social media and digital technology that has made the purchase of securities as simple as a push of a button.
So, where is the analogy for retail banking?
To say that most legacy banking organizations are slow to respond to consumer needs is an understatement. While there are definitely exceptions (such as the quick response to last year’s PPP loan), the historical low level of customer attrition creates a lack of urgency for most banks to change processes that have been in place for decades. But consumers are becoming restless.
While attrition numbers do not reflect a mass exodus, a larger percentage of consumers are opening new accounts at the largest banks and with non-traditional providers because of the ease of doing business. Consumers are also increasingly expecting financial institutions to not only deliver the services expected with minimal friction, but also to reflect their views around financial inclusion, diversity of hiring and management teams, and social justice.
What would happen if tomorrow, a massive community of consumers decided your bank was not adequately servicing their needs or reflecting their beliefs? Given the power of social media (and the coverage by traditional media), how quickly could consumers negatively impact a traditional financial institution that was seen as the ‘enemy’ or simply non-responsive to everyday needs?
In a positive perspective on communities offered by Tony Saldanha, a former Procter & Gamble Vice-President and author of the bestselling book, “Why Digital Transformations Fail, “How are we harnessing the power of our ecosystems and networks? We look at our customers today as individuals who need to be personally targeted so we can sell them more services. What if we considered them as partners who could work with us and with each other to bring value creating services for the whole network? ”
Simon Taylor has a more dire warning for the financial services industry:
“Wealth inequality, low interest rates and Gen z having witnesses the financial crisis ruin their family chances has left scars. It’s not enough to offer the same products via digital any more. It’s time to help a generation of people become socially mobile. Banks need to solve their customers’ real problems.”
— Simon Taylor, 11:FS
The Importance of a Phygital Strategy
In 2019, George E. Sherman was appointed as GameStop’s new CEO. To avoid the fate of Blockbuster, he immediately embraced a dual strategy of reducing the cost of bricks-and-mortar by shutting down stores, while speeding up the process of digital transformation. The company also added the founder and two associates from digital pet food retailer Chewy to the board, illustrating a change in leadership strategy and a change in culture within the organization.
This transition is similar to the move made by both Target and Walmart to support a combo physical and digital distribution network. The challenge for GameStop, as well as for legacy financial institutions, is whether adequate investment can be made in the emerging digital channels fast enough. In addition, can an organization support what is needed in the digital world without relegating existing physical structures to secondary importance?
Unfortunately, supporting a dual channel distribution strategy is costly. In a world that values quarterly results, not many retail or banking organizations are willing to invest in the long term while sacrificing short term results. But it may be the only true path to survival.