What is wrong with Games Workshop? And what do they need to do to get back in the driver’s seat?
The huge 25% drop in Games Workshop stock this week lead to some big questions that have been asked many times over the past couple years. The most important being: “What the hell are they thinking?”
Let’s cover some facts first. Games Workshop’s 6 month financials were released this week and were BAD. Yes, they are still making money, but compared to the 12 months previous they are down big.
Revenue £60.5m (2013) £67.5m (2012)
Pre-tax profit £7.7m (2013) £11.1m (2012)
That means that sales were down about 12% and profit down about 30%. Those are huge numbers – especally for a public company beholden to the shareholders. What is notable is that the profit is down so much despite major GW efforts to reduce costs and restructure their retail. And their gross revenue is down despite the past two years of price increases, an increase in the velocity of releases and new product, and significant sales growth in the Black Library and Forge World divisions.
So what is the problem?
So what do you do?
You lower prices. You get used to the fact that your business isn’t what it used to be and you can’t keep raising prices forever. You’re not Ferrari, but maybe you can be Mercedes. You also either get the company sold or you take it private, because this company cannot sustain the growth needed to be a public company, where growth is everything.
If you don’t lower prices, then you really do have a serious problem. These types of situations often lead companies into the vicious-cycle of an ever shrinking customerbase feeding into the need for ever-higher prices and down the drain it all goes.
No need to get more complicated. That is what needs to be done. But I have my doubts the Chairman will do what is needed. He is holding on too tight.
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