The role of the CFO has moved far beyond traditional finance responsibilities. In the face of a rapidly changing industry, Rob Lloyd, CFO of GameStop, played a leading role in helping the specialty retailer transform.
FEI Daily: What are the transformation triggers for an organization?
Rob Lloyd: There can be a lot of different kinds of triggers. You might see an overall slowdown in your business. You might see a slowdown or obsolescence in one or more significant products. You can see change in the industry, technological innovations that affect the core business. Those last two, plus the cyclical nature of video gaming are really what drove us to start our transformation process. And then in some cases, you might have a recognition that there's a certain skill set or technology that a company could possess that could be applied to other industries that drives transformation and expansion.
FEI Daily: How would you describe the goals for GameStop’s transformation?
Rob Lloyd: Initially our goal was to diversify our business in ways that extended our specialty retail competencies. We also wanted to protect the profitability of our core video game stores. And then we wanted to lessen our dependence on the cyclical and changing nature of the physical video gaming space. We were historically in four to five-year console cycles. The cycle that started in the mid 2000s wound up going seven or eight years. And during that time, we also saw a lot of change in gaming going from what was almost solely physical products into the digital realm as well. And while the length of the cycle and the digital gaming were not necessarily related, they were both triggers for us that we needed to play a bigger role on the digital side of the business, and that we needed to do something to lessen our dependency on a cycle that was not in our control. As a retailer, we sell the products that other companies develop and we can't control the length of that cycle. And we knew that we wanted to find some other ways to drive revenues and profits. So we found some new product sets that we could carry in our GameStop branded stores, including digital products. And then, we found some new retail categories that we could use for growth and to which we could apply these things that we saw as specialty retail core competencies.
FEI Daily: What are the key factors for executing a successful transformation?
Rob Lloyd: I think you have to have a vision and a strategy for where you're going at least at the outset. It’s going to change along the way, but it's important to at least start with a roadmap. You've got to have the capital and the capital allocation strategy to make informed decisions. Having the capital to pursue what you want to pursue makes life a bit easier, but then making sure that you're investing in the right kinds of decisions and you have gathered the information you need to make those decisions is important. The ability to communicate the strategy both internally and externally is also important. In our case being a public company, how we tell the story of our transformation to our investors, to the media, to other interested parties including vendors is important as well.
It's important to have an understanding of what success is going to look like and then you can more easily seek that as you alter your strategy along the way, make refinements to it, etcetera. And then you've got to be willing to try some things and have them fail because some will fail. That's important culturally too because inevitably in a company that's trying to transform you're going to ask people to take on roles that are new and that are different.
We've been successful thus far in our transformation and one of the reasons for that is management is all in alignment and we gain alignment before we're communicating to the board, and I think that's very helpful. And while everyone has their own set of responsibilities, I think it minimizes the silos to make sure that we're all in agreement on where we're going with a particular decision or the strategy in general.
FEI Daily: What was your first step in designing a strategy for the future?
Rob Lloyd: We brought in some third-party consultants to help us to do a strength, weakness, opportunity and threats grid around what we were facing as a company. And then identifying those strengths and opportunities really helped us to hone in on this concept of having core retail competencies that we could extend to other growing retail brands. The third party gave a level of confidence to our board of directors that we had done a pretty thorough process in terms of defining the strategy that we were going to pursue.
FEI Daily: What advice would you give CFOs and other senior-level executives leading their organizations through a major transformation?
Rob Lloyd: First and foremost, you have to be a partner to the CEO on defining the strategy and the vision, making sure that you have a seat at the table with the CEO and the rest of the leadership team, on shaping that strategy and shaping the execution of it. As the finance guy, you have to be a bit of a capital allocation guru. You're going to invest a lot in the transformation and so you've got to be the gatekeeper and make sure that the investments that you're making, whether it's new product development, whether it's M&A, capital expenditures, they're going to drive shareholder return. You have to make sure the analytics behind that are very robust; you've got to make sure that you have methodologies to track the results once you've spent some money on some form of investment. But balancing that, you have to be willing to take some risks as well, because not everything that you're going to try to do in a transformation is going to work the way that you want it to. You're going to have some hits and you're going to have some misses, and so you've got to be willing to live with those misses and understand how the organization is going to deal with them, learn from them, try to avoid them in the future.
One of the things that I've learned is that I've also got to be a bit of a hunter and a gatherer. I've got to bring ideas to the table. We have a strategy guy who is heavily focused on how we're transforming, our CEO is obviously very involved, but I've also got to bring things to the table, whether they're retail concepts that we could potentially invest in. And then on the gatherer side, that's really about using the analytics that we can generate from the business to determine whether or not the steps we're taking are paying off for us, are we meeting the desired return objectives after the fact?
FEI Daily: As CFO, what were your biggest concerns for the company and how did they inform your strategic vision?
Rob Lloyd: Our concern centered on the changing nature of our business going back five or six years. I mentioned digital gaming was becoming more prevalent, there were new technologies to download games, there were new technologies on which you could play games like tablets and smart phones as those became prevalent in the marketplace. And that really changed what our consumer was doing with their time, it changed how they were spending money and it changed how our core physical gaming business was developing. And so concerns for us were to make sure that we didn't get left behind.
FEI Daily: How does senior management engage employees and give them a sense of ownership?
Rob Lloyd: Joey Mooring (Director of Public Relations at GameStop Corporation) has focused on making sure that we're communicating our journey to our associates. Obviously the senior team understands what it is that we're trying to do and the decisions that we make and why we make them, but we've found that if we can more thoroughly communicate them throughout our employee base, it really makes the journey easier. There's a lot of change going on at GameStop. One of our mottos is that the rate of internal change has to exceed the rate of external change or we're going to get left behind. But not every associate wakes up living and breathing that every day. So it's important to communicate to them how we're doing on the journey, what recent decisions have been made and why. We focus on sending that message out in written form, in town hall meetings and disseminating information that can be presented through the teams, my direct reports and then their direct reports and then so on to make sure that every associate gets it and understands.
One of our philosophies here is to protect the GameStop family, and we've just found that if we can better communicate what it is that we're doing, it's easier to protect the family when everyone understands the direction in which we're trying to row and we're all rowing in the same direction. And then in terms of a sense of ownership, all of our director level and above employees receive an annual restricted stock grant. So that creates the sort of ownership of the results and the journey and helps us as well.
FEI Daily: How does GameStop involve big data in their decision-making?
Rob Lloyd: We have over 34 million members in our rewards program, 'Power of Rewards,' in the US, another 14 million in other countries. And the data that we gather on consumer behavior is very rich and allows us to make a lot of key business decisions. Over 70% of our transactions involve a rewards member. So you can imagine that we have a lot of history on the products that they want to buy. Selling and trading your games back to GameStop is an important part of our business model. So we have behavior on how they trade games, which customers are willing to do it, how quickly they typically will trade a game after buying it. That data allows us to personalize your shopping experience in the omnichannel environment. It allows us to personalize messages to the consumer about the value of the trades that are sitting on their shelves at home.
We can also use the program more broadly in order to communicate new store openings to our customers, to communicate the expansion of our other retail concepts. So it's primarily a GameStop-based program, but that doesn't mean we can't tell the consumer about the Simply Mac store we're opening in their community or the AT&T store that we're opening in the community. We’ll do that with targeted emails based upon zip codes. We also use it to create personalized experiences in store. So when you walk in the store, we can pull up information based upon your phone number, on your library and the types of games that you like and the types of offers we have in the genres or categories that the customer typically likes. And then lastly we use it to optimize our store footprint. If we decide to close the store, we can move the customer to another location via email, enabling us to transfer sales to other locations and thereby improving our profitability. So it's been a very robust program. We're still finding ways to use the data, we're finding ways to manage the data more effectively, but we've been really pleased with what we've been able to get out of that program in the last few years.
Rob Lloyd is chief financial officer of GameStop.