Ryan Cohen Maps Out GameStop Turnaround Plan

Perhaps no one, not even the day traders’ hero called Roaring Kitty, is more responsible for the improbable 700% rally in GameStop Corp. this year than Ryan Cohen.

At 35 years old, Cohen is a billionaire entrepreneur with a reputation for a Midas touch after building the pet-supply site he co-founded — Chewy — into a booming business. And so when word got out in mid-January that he had secured three seats on GameStop’s board after amassing a 13% stake, shares of the video-game retailer exploded. What had just been something of a run-of-the-mill outperformance in the bull market turned into a parabolic surge overnight.

Ryan Cohen Maps Out GameStop Turnaround Plan

Amid all the zany theater that has since come to surround the GameStop rally — the emergence of the rowdy Reddit day-trading crowd, the short-sellers’ existential crisis, the congressional hearings — Cohen’s role in the whole saga has been obscured and his name largely forgotten by the broader public. But behind the scenes, he is scrambling to craft a viable turnaround plan for a company that for years had seemed destined to die a slow, anonymous death as gamers abandoned its mall locations and started shopping more and more online.

Cohen’s goal is to push the company rapidly into e-commerce, and according to people familiar with his thinking, he plans to borrow heavily from the model he implemented at Chewy to pull off that transition. Key components include turning GameStop’s abysmal customer service into a five-star experience and aggressively expanding product selection. GameStop, of course, has a major problem that Chewy never did — the financial drag of operating thousands of physical stores — and Cohen is searching for alternative uses for many of the locations he doesn’t opt to shutter. Among the ideas he’s considering is training centers for aspiring esports gamers.

Cohen, who takes over as chairman in June, has brought in several of his old Chewy lieutenants to help execute his plan, including the mastermind of the customer-service program, Kelli Durkin. And GameStop has managed to pay off its debt ahead of schedule, relieving pressure on its finances and buying Cohen some time. The company also just completed an at-the-market equity offering program that raised $551 million.

For all those true believers — and speculative opportunists — who drove GameStop’s market value up from a few hundred million dollars to over $10 billion in a span of weeks, the question is whether Cohen and his Chewy model will be enough to fix GameStop or whether its problems run too deep to be solved.

“Making a pivot into online retailing is very difficult,” said David Cole, an analyst at DFC Intelligence. “However, someone like Cohen — with an aggressive push — is what is needed to have any chance of success.”

Cohen has embraced the mischievous spirit of Elon Musk as he pursues a GameStop comeback. Like Tesla Inc.’s prankster-king, he posts goofy and sometimes mysterious images on social media (a poop emoji over a picture of a Blockbuster store or the stuffed bear from the movie “Ted” using a bong). That’s helped him win over the Reddit crowd, which turned GameStop into a so-called meme stock — a ticker that trades more on social-media buzz than fundamentals. Someone even edited his Wikipedia page recently to give him the title “Jesus 2.0.”

But now Cohen has to deliver. The company is seeking a new chief executive officer, with the goal of going head-to-head with Amazon.com Inc. and other e-commerce sites. And Cohen looks to forge new partnerships with video-game publishers and tech giants, potentially increasing the number of services GameStop can offer online.

Cohen, who was born in Montreal, never went to college. He has credited much of his success building Chewy to his father, who ran a glassware business and died in 2019. In person, Cohen has a soft-spoken demeanor, revealing little of his shrewd business instincts and ability to drive bargains with suppliers, former colleagues say.

Since joining the board in January, Cohen has orchestrated a management overhaul of the Grapevine, Texas-based company. That’s included removing Chief Financial Officer Jim Bell and appointing new executives like a chief technology officer. Replacing CEO George Sherman will complete the reshuffling. GameStop said last week that its board was looking for a candidate who can “accelerate the next phase of the company’s transformation.” Sherman is slated to leave before the end of July.

But that still leaves the question of how Cohen is going to turn a massive chain of physical stores — nearly 5,000 at the end of last year — into a sleek online operation.

Part of that involves closing locations, especially poor-performing ones, a process that began well before Cohen came on the scene. Sherman, a veteran of retailers such as Advance Auto Parts Inc. and Best Buy Co., has shuttered hundreds of GameStop stores since he took the helm in April 2019 — a process the company calls “de-densification.”

Fortunately, GameStop isn’t locked into many long-term leases. The majority of them expire within the next two years, giving the company flexibility to walk away from poor-performing locations.

Still, GameStop can’t shrink its way into prosperity. The hope is to actually sell a bigger range of products, but do more of it online, while efficiently using the stores that remain.

Cohen also looks to tap the culture and ideas cultivated by Chewy, which he sold to PetSmart and a British private-equity firm in 2017 for $3.35 billion. Exceptional customer service is one of them. Wide product selection is another.

Ryan Cohen Maps Out GameStop Turnaround Plan

There also are parallels between pet owners and gamers that Cohen can draw on. Their purchases aren’t merely transactional. Both sets of customers tend to be deeply emotionally invested in what they buy. And there’s a strong element of community around pets and video games. Customers tend to treat employees as experts, helping them select the right pet food or game.

When Cohen took a board seat in January, he brought along Alan Attal and Jim Grube as fellow directors. Attal, a longtime friend and business partner, helped found Chewy and oversaw operations and marketing. Grube worked on Chewy’s customer-acquisition model, which paved the way for its rapid growth. In February, GameStop hired Durkin — who built Chewy’s praised customer-service division — as vice president of customer care.

Durkin, who had never been inside a call center before she was hired as Chewy’s employee No. 4, built customer care into a 3,000-person division with a few ground rules:

  • All calls should be answered within six seconds by a live person, based in the U.S.
  • Representatives can stay on the phone as long as the customer wants to chat.
  • The company provides no-questions-asked returns or exchanges.
  • Pet parents would get a swath of freebies and gifts, like hand-painted portraits of their animals and handwritten cards on their birthdays.

For now, at least, GameStop isn’t at that level. When a Bloomberg reporter recently called GameStop’s customer service line, an automated voice spelled out instructions for 40 seconds and promised that the call would be answered within 15 minutes. After 39 minutes, the phone was picked up by a representative who said she was in the Philippines.

At Chewy, Cohen avoided the typical corporate procedures, including large meetings and memos, telling employees instead to embrace a just-get-it-done mentality. It was a strategy that worked well for a closely held startup free from the constraints and scrutiny of publicly traded companies like GameStop.

That doesn’t mean Cohen was aloof or took success for granted. He operated the business with “deep paranoia,” said Larry Cheng, a managing partner at Volition Capital, which was Chewy’s first outside investor.

“It made him very detail-centered and very knowledgeable about the business,” said Cheng, who has been nominated to GameStop’s board.

But selling video games is different from pet supplies in a key way, said Michael Pachter, an analyst at Wedbush Securities.

“I think he is a visionary about selling physical products that cannot be downloaded (dog food, pet supplies, pet medicine),” he said in an email, “but don’t see how that experience is applicable in a setting where the core product sold can easily be downloaded.”

Still, unlike many aging retail brands, the GameStop name resonates with its core shoppers, said DFC Intelligence’s Cole. And gamers often want products right away, rather than waiting for them to be shipped. If GameStop can offer more inventory online with in-store pickup, it could have an edge over Amazon, he said.

“The stock speculation aside, there is a great deal of potential for GameStop,” Cole said. “Someone like Cohen may be able to help unlock that.”

©2021 Bloomberg L.P.

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