Why GameStop shares fell more than 10% on Monday


What happened

Even on a badly depressed day for the stock market, GameStop (NYSE: GME) was a real flop. Shares of the video game retailer slumped 10.3% on Monday. Investors, it seems, are not enjoying the company’s recently announced financing services.

So what

GameStop has just unveiled its FlexPay suite of hardware and game rental services. These include three offers: buy now, pay later; layaway free of charge and hire purchase.

GameStop partners with a trio of specialist companies to offer these options: fintechs QuadPay and Klarna for the first two, and the lender Progressive Leasing for the third.

Image source: Getty Images.

Several reviewers have sharply criticized these offers, describing one or more of them as a “scam” and “disgusting” to those with poor credit. Author Derek Strickland, on the TweakTown gaming website, writes that he did a quick math on a lease-to-buy deal for a $ 499 gaming console.

“The results have been absolutely breathtaking,” Strickland wrote. “Assuming you don’t have credit, purchasing a $ 499 console with Tiered Leasing with 12 month payments would cost $ 1,181.75 in total.”

Now what

GameStop had been a shaky business even before the coronavirus pandemic swept the world and began to drive consumers away from retail stores. The company’s fundamental brick-and-mortar sales model is not very effective in this age of download.

It is admirable that management is trying to design new sources of income. These harsh criticisms of the new programs are not going to help, however.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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