PS5 And Xbox Series X Having Backwards Compatibility Could Help GameStop Sales Improve

Video game retailer GameStop is struggling. The company's latest financial report showed double-digit decreases in revenue for the holiday period, and the downturn was attributed in part to the current console cycle coming to an end.

GameStop management is optimistic that things will turn around in the coming year when the PlayStation 5 and Xbox Series X are released, or sooner. Speaking at the 2020 ICR Conference in Orlando, Florida, GameStop CEO George Sherman spoke about how the next-gen consoles' disc drives and support backwards compatibility should benefit GameStop.

"If you think about the attributes of the new consoles that we were waiting on with baited breath, one was would it have a disc drive going forward and it does. The second part is backwards compatibilty. The ability for all the games from previous generations to work on the new console is there," Sherman said.

Hardware and software sales at GameStop have fallen, and one line of thinking is that customers are holding back buying games and consoles because new ones are coming. Given the PS5 and Xbox Series X will support existing PS4 and Xbox One games with backwards compatibility, Sherman said he's hopeful people will realize this and start spending more with GameStop.

"I think there is still a little bit of an education process going on with the customer right now about what backwards compatibility means. Our gaming zealots understand that well; they know exactly what that means, but we think there is going to be a resurgence with the new consoles now that the word's out that your games are gonna work," he said. "It's not throwaway money. It's going to be something you can use on your new device."

The PS5 and Xbox Series X have been announced, but both Sony and Microsoft have yet to formally detail each console's features, so it makes sense that it might not be widely known to the mainstream audience that the systems will play existing games.

SIE president Jim Ryan told GameSpot sister site CNET backwards compatibility and cross-gen are important for the PS5 to help players have a seamless transition. Currently, it is only confirmed that the PS5 will play PS4 games; there is no confirmation yet regarding titles from earlier systems.

"Whether it's backwards compatibility or the possibility of cross-generational play, we'll be able to transition that community to next-gen," he said. "It won't be a binary choice about whether you have to be either on PlayStation 4 or next-gen to continue your friendship."

As for Microsoft, Xbox boss Phil Spencer has said Xbox Series X will support backwards compatibility on day one. The console will not only play Xbox One games, but also Xbox 360 and original Xbox games. Microsoft has also committed to not releasing any Xbox Series X exclusive games for the first year (or two) of the console.

Going back to the GameStop interview, Sherman said the company expects sales to continue to slide for the foreseeable future, but the PS5 and Xbox Series X launches could help things turn around. GameStop is also cutting costs to improve profitability by closing stores and laying off employees.

"We know [the PS5 and Xbox Series X] are great devices. We know they are technological step-changes," he said. "This is an evolution that is going to bring far, far more capability and excitement to gaming, and we firmly believe the thesis for us holds. We recognize the tough sales we announced yesterday. We recognize the tough sales ahead of us. But we also recognize that we are doing a lot of work around the hygiene of the business. Our expense structure. Our store footprint. So that we can really parlay the opportunity coming our way at the end of the year."

GameStop CFO Jim Bell also chimed in on the matter, saying the PS5 and Xbox Series X having disc drives will help sustain GameStop's second-hand business which relies on physical media.

A turnaround would be welcome for GameStop, as the company is currently trading at around $4.73 per share, which is close to an all-time low for the retailer.