Knowledge Center: Publication
Fail fast, win big: An interview with GameStop CEO J. Paul RainesSubscribe to Consumer Markets 3/17/2017 Thomas J. Snyder and John S. Wood
While competitors such as Best Buy increasingly de-emphasize brick-and-mortar operations to prioritize digital channels, GameStop has no such plans. In fact, CEO J. Paul Raines is harnessing the storefronts as a means to appeal to customers in ways the gaming retailer’s competitors cannot. The Grapevine, Texas–based retailer currently boasts more than 7,000 stores in the United States, Canada, Australia, New Zealand, and Europe, and it reported 2015 sales of approximately $10 billion.
Raines has been CEO of GameStop since 2010. He joined the company as chief operating officer in 2008 after two decades in a variety of leadership roles at Home Depot, L.L. Bean, and Kurt Salmon Associates. Raines took the helm at GameStop as industries across the board were being disrupted by digital technologies, and his tenure has largely focused on addressing the challenges that come with innovation while pursuing an omnichannel strategy.
Heidrick & Struggles partners Tom Snyder and John Wood met recently with Raines to discuss GameStop’s strategy and his experiences as CEO. The following interview touches on the lessons the company has learned from its new ventures, the challenges of balancing the digital and brick-and-mortar worlds, and the need for CEOs to maintain a strong and transparent relationship with the board.
J. Paul Raines
J. Paul Raines has more than 20 years of executive experience. He was the chief operating officer at GameStop Corporation for a year and a half before being named CEO in June 2010. Raines serves on the board of directors for J. C. Penney and the board of trustees for the Georgia Tech Foundation.
Heidrick & Struggles: What unique challenges is your industry facing?
J. Paul Raines: Technology is adapting every day, and with that comes countless technological issues. The mandate, then, is to drive an aggressive rate of change while fielding all these challenges and maintaining the culture of the organization. In our industry in particular, we have the risk of digital disintermediation. Couple that with the constant ebb and flow of interest as new products are introduced, and it can make our job really difficult.
Heidrick & Struggles: How do you work through these challenges?
J. Paul Raines: For a retailer, agility and innovation are paramount, and sometimes that means you make a few mistakes. I like to say we’ve had a lot of fast failures to get a few big wins. For example, we acquired Jolt Online Gaming in Dublin, launched two games, and then had to write it down to zero just four years later. We bought ImpulseDriven.com, a PC download business, and we ran that successfully for a couple of years before the technology got ahead of us and we wrote that down to zero as well.
On the other hand, we built a hugely successful loyalty program, PowerUp Rewards. It has 51 million members around the world, including 34 million in the United States. We developed the technology for digital content sales in partnership with Microsoft and Sony, we launched a mobile publishing business called Kongregate, and we had $1 billion in digital receipts in 2015—so we’ve found success in many of our initiatives. You’ve got to be able to accept that some initiatives will work out and others won’t.
Heidrick & Struggles: How do you balance the digital and brick-and-mortar worlds so that you can excel in both?
J. Paul Raines: We’ve been very successful in the digital space. Last year our digital business budget was $1.2 billion, which is strong in the industry. Generally, we’ve slain the digital dragon that could have threatened to put us out of business. Physical products, meanwhile, are going into a cyclical decline. Until new consoles that harness technologies like virtual reality start coming out, we will need to stay focused on our digital offerings.
As part of that, we’ve developed a very interesting omnichannel business. Because we have thousands of stores, there’s a GameStop within a half mile of almost everybody in the United States. We’ve tried to capitalize on that. Customers can look at a game on our website, reserve it, and pick it up from the store on their way home. Or if they come into the store and the game is out of stock, we’ll order and ship it to their home for free. We’ve also cataloged the inventory of every store with our web inventory, so if we don’t have something in the warehouse, we can ship it to the customer for free from a store that has the product. Finally, we know about 60% of our customers use our website to conduct product research before purchasing the product, and 70% of our traffic is on a mobile phone, so digital has been important for us.
Heidrick & Struggles: How else do you stay ahead of your competitors?
J. Paul Raines: Our chairman likes to say we dance between the toes of the giants. We compete with Microsoft and Sony every day. We will launch a game both digitally and physically on the same day that our competitors launch it digitally, giving us an advantage. We also host events at our stores, like midnight launches, that help us compete with them.
Building on this, we’ve expanded into the collectibles business. It’s a great business, and it’s naturally adjacent to video games. Say we sell you a Batman game. We’ll push to sell you a Batman figure and a T-shirt too, so our transaction could double or triple from the $59 you were going to pay just for the game. Right now, 13% of our loyalty-program customers are buying both games and collectibles in our GameStop stores, so that is another way we differ from our competitors.
Over the past four years we’ve gained the most share in the industry. We’re in the 30s, and Amazon is number two with about 9%. So we’re doing something right, and our staff is a large part of that.
To succeed, you have to have authenticity—regardless of what industry you’re in. We therefore strive to be highly authentic in gaming, mobile, digital, and collectibles, and we’re in business with people who are authentic. Every year we take all of our store managers to a convention center somewhere in the country for four and a half days of education on our games and products, so our people are highly knowledgeable. We train our employees extensively so they can be authentic, and our customers are loyal because they have come to expect this level of trust and intimacy from us.
Heidrick & Struggles: Is it challenging to attract and keep talent in your business?
J. Paul Raines: I’ve been very fortunate to be able to bring a lot of excellent people here. Trust is a critical component in the war for talent, and my former colleagues trusted me that we were going to build something important and meaningful together at GameStop. And we have.
I just read a book about Nikola Tesla. He used to say that innovation comes not from thinking about things, but from connecting things. In talent, we’re looking for people who are great connectors with broad-based knowledge. Surprisingly, these people are harder to find than functional specialists. While specialists are great for emergencies—like a security hack—on a day-to-day basis we want people who can see the whole picture of IT and infrastructure.
Heidrick & Struggles: What are some of your other key values or strategies as a CEO?
J. Paul Raines: We have signs everywhere that say “Protect the family,” and we stay focused on that first and foremost. That means our employees, customers, and investors are always top of mind.
I also think often of the Hippocratic oath, which says “First, do no harm.” Especially when coming into a role, a lot of people want to step in and start pulling the trigger on a bunch of initiatives. But before you do that, you have to understand a number of things. First, get to know your associate base: where are they, where’s their heart, what have they been told? You also need to understand the marketplace. What are the market dynamics? What are aging populations shopping for? What about women? What are the tech trends? Then you should be ready to visit your vendors. I want my vendors to be able to pick up the phone and call me directly, and likewise, I need to be able to call them. So the first thing is to make sure the relationship is where it should be, because you don’t know how they’ve been treated in the past. Last, you’ve got to visit your investors. Before doing anything else, you need to take a month to get up to speed in these four areas.
The other mistake I see CEOs make, besides moving too quickly, is not bringing their board along. I’ve been blessed to have one of the company founders serve as a chairman of my board. He knows where GameStop has been, he knows where we are now, and he has a lot of insight into where we’re headed. I spend a lot of time with him, even just going to get coffee, because he’s an invaluable partner.
Heidrick & Struggles: What is your relationship like with your other board members?
J. Paul Raines: I try to call every board member often, just to let them know what I’m working on and where I could use their help. All it takes is one person to say, “I’m not sure he’s right,” and you’re in trouble. So you’ve got to keep your board involved with what you’re doing and maintain that relationship.
But then sometimes you have to respectfully push back—for example, if you think board members might be getting too far in the weeds. The board has to be able to trust my judgment, the same way I trust, say, my CFO in managing our financials.
In general, though, my attitude has always been that I serve at the discretion of the board. If the board wants to go in a different direction than I do, I will advise them on why I don’t think that’s a good call, but if I’m not making any progress with them I will pull back. The board is ultimately accountable to the shareholders, but I do think part of my job is to counsel and coach them, or, at times, to stand firm and deliver.
Heidrick & Struggles: You serve on boards yourself. What lessons do you bring as an executive to someone else’s board?
J. Paul Raines: To be on a board, you have to know the industry. You can’t be a professional board member, though there are a lot of those out there. Being on a board is about more than just collecting a check. In a way it involves some of the same responsibilities as being CEO. Whether you’re on a board or fortunate enough to serve as a CEO, it’s all about making the company as successful as possible. That’s the only way to handle these jobs.
About the authors
Tom Snyder (email@example.com) is the global managing partner of Heidrick & Struggles’ Consumer Markets Practice; he is based in the Chicago office.
John S. Wood (firstname.lastname@example.org) is a vice chairman in the New York office and a member of the CEO & Board Practice.