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t?s the day after Thanksgiving, and Paul Raines can?t stop smiling.
Partly, it?s his normal disposition. But today is Black Friday ? the day in Corporate America ? and Raines has something extra to smile about.
Nine hours into Black Friday and the Dallas-area GameStop where we met Raines is pleasantly full. For many of his Corporate CEO counterparts, it?s a holiday weekend. But for Raines, the CEO of GameStop, it?s most definitely a work day.
And by 1 p.m., he has already put in a full day?s worth of work. To watch him interact with customers and employees, you wouldn?t know his day began in the very early A.M. The interaction hardly seems forced.
Raines won?t waste this opportunity to talk to his consumers ? the diverse group of gamers who have made GameStop the stop for their gaming needs, and increasingly other electronics.
The day serves as a microcosm of Raines? tenure as CEO. Raines has preoccupied himself with knowing the minds of his consumers and his own products. That means four-hour-a-week gaming sessions are market research and knowing the back stories on characters like ?Max Payne? can make you a serious gamer or a poser in a matter of seconds.
The research isn?t just for in-house purposes. More and more, publishers are depending on these insights to make game-release plans, advertising buys and packaging decisions. They?re wise to listen. Under Raines, GameStop has enacted some of its most aggressive efforts to better know its consumer base. Their Power Up Rewards Program has 21 million members, representing nearly 40 percent of all U.S. gamers. They are regularly tapped for relevant information: Do we need another Mario game?
Answering these questions is fundamental to the continued long-term success of the gaming giant. That?s nothing new for Raines, who has deflected the rumors of the company?s demise since taking the helm in 2010. The smile remains fixed.
?I am known around here as the permabull,? Raines says. ?I think that in spite of the uncertainty and the economy, we?re feeling pretty good about our position. Our competitors are in crisis. That helps us. We?ll see what happens.?
LATINO LEADERS:? What an interesting year it?s been for you guys already.
PAUL RAINES: We?ve actually had a funny three weeks. We?ve actually launched three of the biggest properties of the year, and we launched the largest entertainment property in the world called Call of Duty on (November 9). It?s nutty.
We had midnight events in 6,000 stores, with people dressed up like soldiers.
LL: But it?s not just the kids, right?
PR: No way. These are adults. The average age of a gamer is 38 years old; 40 percent are women. It?s not unlike the movie business in many ways. It?s about entertainment, and people get passionate about certain things and, if they love a movie, if they love a game, they dress up. They want the accessories. They want the T-shirts and the digital content.
LL: How does the end of the year look right now?
PR: We had our earnings call (November 15), so we gave some guidance around the fourth quarter, and we are optimistic. If you think about the fourth quarter, you have a lot of strong title lineups, which are continuing. In the console video game business, you have the Wii U launching, which is very exciting. We haven?t had a Wii in six years. It?s a very big deal for us.
In addition, our re-commerce, our mobile business, is growing very quickly. We are selling tablets. We?re refurbishing iPhones and iPads, Amazon Kindles. I just saw that we got some Barnes & Noble Nooks we are going to be selling.
Mobile business is really accelerating. It?s a great holiday item. For the first time ever, we think we figured out how to sell digital content as a Christmas item. You?re going to have a
lot of people in GameStop buying a downloadable piece or a digital content piece for Call of Duty of Assassin?s Creed.
That?s interesting. You?re selling a customer a download. You?re going to put a piece of paper in a box and say, ?Here?s your download.? Actually, the download is already happening. It?s been sent to their phone or console.
LL: All we?ve heard about lately is that the console is already antiquated. People want straight-to-their-TV downloads. How does GameStop view that?
PR: Circa 2008, the conventional wisdom was that consoles were going away. The world was going to social games. Of course, we watch Zynga and Facebook losing. It?s clear to us that that really wasn?t going to happen. Consoles are on their sixth year of existence, so the innovative premium has been taken by other products ? Apple. Everything Apple does. Or Google.
We now sell the Nexus tablet. What?s obvious to us is what you had was not a physical to digital migration, but you had an innovation chase. The consumer goes to where the innovation is.
And as the consoles have gotten older, there has been innovation that has taken over, and people have moved into it. What we see, though, is that the consoles used to be a purely physical device, and today the consoles s both a physical and digital device. We have found that we can merchandise and sell digital content that isn?t complete games but add-on components. We can merchandise and sell it in-store pretty effectively.
What?s interesting to me is ? we entered the DLC business in 2010ish ? we have reinvented the digital content business because we can merchandise it. We can offer customers add-ons. When you buy Call of Duty, we ask, ?Did you know there?s digital content that comes with it??. If we don?t tell you about it, you won?t find it online. It?s too confusing or hard to find.
Plus, we?ll take your Kindle or iPhone, and we?ll buy it from you, and you can use that to apply in-trade credits. Add to all of this we have a Power Up Rewards Program that we created in 2009 that has 21 million members. That?s a very powerful community. This community represents 40 percent of all video game consumption done in the United States.
Once you create all that stickiness and all of those relationships with the consumer, it?s hard to get away from GameStop as a place to buy your videogames, and increasingly electronics. Customers come in and they want to buy solutions. They don?t care if they are physical or digital. Everybody thinks consumers are physical or digital. They?re really hybrids; they?ll buy some physical, and they?ll buy some digital. We?re trying to help them figure out what the right options are.
LL: It seems to the uneducated that the gaming industry survives on a handful of titles. What?s really going on?
PR: Videogames are like music and movies. There are lots of genres of different kinds. I am a James Bond fanatic. I am not a fan of the Twilight series. My wife and my daughter want to go see the Twilight series. I don?t really care about it.
The same thing happens in games. There?s FIFA Futbol. FIFA Futbol is a huge Hispanic title. We do very well in Texas and Florida. So there?s a consumer that we communicate to privately through Power Up Rewards, and we communicate with them year-round.
We tell them, ?The Euro Cup is happening in the Ukraine. Did you know there?s a Euro Cup FIFA, and here?s the link, here?s the download, here?s the game. So, we do a lot of very rich segmentation to the people who like sports.
Then, there?s Just Dance. That?s one that?s very popular with moms. So, that?s one we sell Just Dance to. The Call of Duty people are not the Just Dance people. In fact, if I could take you to meet the buyers, you?d see that they are very different people.
We have to understand all of it, and it?s very important that we are authentic about it. It?s important that I be authentic about it, so I play four hours of video games a week. The way we market to people is very rich and very segmented and very stealthy.
If all we did was to put an ad in, it would be a very tough business because the only ones that ever breakthrough are the big ones, like Call of Duty. We are marketing and merchandising year-round. In fact, we are helping publishers plan on what they want to do.
We worked with Activision to plan out how much digital content to do with Call of Duty. They were going to do it one way; we recommended doing it another way. We ended up meeting in the middle. Those are the kinds of things that we do that is unlike anybody else. This is all we do. All we do is sell videogames and electronics. We don?t sell refrigerators. We don?t sell groceries. We don?t sell diapers along with videogames. This is all we do.
One of the things about GameStop is our unique knowledge of the games and of the business and of the consumers. (It) allows us to have data that the others won?t have. We go back to the guys who make this game, and we say, ?Be aware. You?re running behind or you?re running ahead. Run an ad. Let?s do digital.?
LL: What has your time at GameStop been like? Do people think it?s all play?
PR: GameStop has changed a lot in four years. In my first month here, the chairman said we needed to do a strategic review of the company. We have many threats ? digital threats, big box threats, Amazon, Best Buy. We spent a lot of time ? the first six months ? developing a view of the world and where the world would be.
From that, we went to our board in the Spring of 2009 with a request for capital.
We said we needed to do a few things. We needed to create a loyalty program. That loyalty program today has 21 million members. That didn?t exist.
We needed to create a technology to sell digital content to consoles. That didn?t exist. It was some quirky business on Xbox Live. Now it?s called DLC, which is a $300 to $400 million-dollar business this year.
We also knew that we didn?t know everything we needed to know about digital, so we created a sort of venture capital group called GameStop Digital Ventures. We seeded that with about $100 million. They went out and did a bunch of acquisitions.
That all comes from that work done in the Spring of 2009. This work with the consumer is a fairly recent phenomenon for us. But what we are trying to do is build a personal relationship with the consumer so that they know we are the only place to get the best advice about video games and technology. Increasingly, we are a source for tablets. We are selling phones, etc.
We want to be personally connected with you, to help you understand how you can buy and pay for things. At the same time, if you buy something from GameStop, we want to let you sell it back to us when you are finished. That?s very different. Last year, we gave consumers almost $2 billion dollars in trade credit.
We are $10 billion dollars as a company, and we gave $2 billion back to our consumers. Seventy-percent of what we paid you, came back to us when you purchased something new. We call it the Circle of Life. That?s fundamental to GameStop.
LL: Talk a little bit about your own leadership journey. Did you anticipate being here?
PR: I?ve been in a lot of tough spots. This wasn?t a job that I aspired to or planned on. This has all just happened. I spent a lot of years in Costa Rica. I?ve seen that the world isn?t as easy as it is for us here. You have to be resourceful. You have to reinvent yourself.
I spent 10 years in consulting starting up companies. I started a company in Peru with a 24-hour bodyguard in 1989. I was in the middle of the devaluation of Peru, a 200-percent devaluation in one year. Can you imagine? Running payroll was unimaginable.
We?d pay employees with big trash bags full of cash. We set up a meat and vegetable market outside the door, so the employees could immediately buy all that stuff because if they waited a day, their money was worth less.
LL: Your staff has called you scrappy. Would you say that?s an accurate description of your personality?
PR: What I?ve learned is that the rate of change is very important to a company. So I believe that we have to be that way. We like to kick around entrepreneurial, scrappy, honey badgers. That?s just my personal philosophy, that rate of change is very important.
One of the things in my job that is very important is to understand that everyday there are thousands of families depending on us to do the right thing. If we don?t grow this company, than we can?t offer people security.
We have to grow the company; we have to keep being aggressive. I interpret that as being scrappy and constantly finding opportunities. I think the worst thing we can do is let the environment define us because then we will be putting the family at risk.
I?ve been in those environments, and that?s not good. I am watching my competitors, and I see layoffs and stock market declines, and all of these things, and it?s very painful. Better to raise the intensity of the organization and not have to face that then to have to deal with it.
I went through four Hurricanes in 2006. I was the regional VP for Home Depot in Florida. We had four hurricanes in six weeks. Adversity is going to present itself. You have to deal with it.
In Costa Rica, the power would go out, not once a year, but once a day for two hours. The water goes out. Where in the world does the water go out? Of course, they didn?t have water for everybody in the city, so they would rotate it. So you have to be scrappy. You have to find a way. It?s OK. We can find a way to win. My responsibility here is to be a steward of this organization and? ?to drive change in a way that keeps us growing and protects us from competition. That?s what we have to do.
LL: You don?t seem like the typical corporate CEO. You don?t seem like the overly intense screamer.
PR: I?ve learned that the screaming and yelling is an unsustainable strategy. You can only do that so much, and after a while people don?t react well to that anyways. I think what people do react well to is to helping them succeed, educating them, being transparent and inspiring competiveness because we want to win.
We want to find a way to win. I like to say that we have to change the rules of the game everyday. You can come to work and do the same thing everyday, and there are people who are happy to do that for 20 years. What I am trying to do is say, we need you to do that, but we need you to try to find a way to win and change the rules, so we can advance your mission.
You must have intellectual curiosity. How are other people doing it? How are other people doing it? How do we need to change? I think that sometimes the problem in companies is often there is a lack of empowerment in people to change the rules.
Now that doesn?t mean you?re going to do everything against procedures, but it means you?re empowered to do something differently.
I?ll try anything. You have to be willing to push the boundaries. As long as I am here, we are going to continue to do that. Look at the number of people who said we?d be out of business in 2008. We have faced a mountain of adversity ? the digital risk, the European risk, the big boxes are going to swallow us, the founders are leaving; the new guys are going to screw it up.
We faced a mountain of challenges. The only way to get through that is to be entrepreneurial everyday.
LL: What did spending so much time in Costa Rica teach you about leadership?
PR: It?s an unusual background. People say, ?Raines? What kind of Latino is that??. I grew up in a bicultural family of older parents. Dad was a military guy ? U.S. Navy. So I spent my youth always being out of place.
If you consider a kid like me shows up in (Costa Rica), that?s not an easy thing. I love it; it?s a great place. Every day you had to find a way to fit in. I played baseball; they played soccer.
For me, it was always important for me to find a way to fit in and leverage the strengths that I had. And those that I didn?t have, I had to learn quickly. (Barrio Cordoba) is a modest place: bars on the windows, rickety buses roll down the street. It was a rough place.
My cousins and I would play soccer with a pig bladder. They?d slaughter the pig, and they?d wash out the bladder of a pig and blow it up like a ball, and you could play for 15 minutes before you had to blow it up again.
What you learn is that human beings have dignity, and they?re all trying to do the same thing: they?re all trying to educate their children; they?re all trying to make a better world, be a little bit more prosperous, whether you are in Fayetteville, Georgia, where I spent a lot of my high school years or Costa Rica. I think that comes through to people.
LL: What?s your approach here, then?
PR: There?s a perception that CEOs aren?t authentic, that they are in it for themselves. Most people who are involved in companies are trying to do the right thing everyday. If you can relate to your team, it helps a lot. I walk around a lot. I make a lot of rounds.
The idea is that I want to see people. Maybe they?ll share something with me. I am trying to humanize and be authentic. We are all facing the same issue. We?re all trying to move GameStop forward. Often, I am able to connect dots. That tends to help humanize you. You learn a lot that way. It all started in Barrio Cordoba.
LL: And, are they aware of the heights you?ve reached?
PR: I wouldn?t call them heights. They love the Latino events that I do. I think the thing that made my family most proud was when I endowed a scholarship for
Hispanic students at Georgia Tech in my parents? names. That was very meaningful to them.
Like many people, my parents and none of my mother?s family had a college education, and the idea of that was so transformational they almost had a mystical belief in it. Costa Ricans typically have a belief about education that is very pronounced.
So the fact that I could endow a scholarship for a Latino student in the U.S. at a good school was very moving to them. That?s probably the one that my aunts respected a little bit more. The CEO stuff? It?s videogames. For them, I am sure they think, ?How hard could it be??.
LL: You also serve on the board of Advanced Auto Parts. What are the leadership expectations there?
PR: I think it?s important to be authentic. I am not going to change the way I look or the way I am. I can improve. I am trying. Different people play different roles on boards. You learn that quickly. In my role as the board member at Advance Auto
Parts, my role is to be the merchandise expert. Beyond that, a merchandise and store advice guy ? a guy who is knowledgeable about investors because I run a public company. I need to be very hands on, and I need to be low key, approachable and accessible.
I love to tease people when they ask about the C-Suite. There?s the C-Suite right there (pointing to his second floor open-door office). What you don?t see is around the corner, there?s a call center for customer service. They all come right there. I very often have guys come over here and stick their head in and say, ?What?s up, bro? What do you do here??. It happens all the time. That?s important, that you be approachable. People can?t be thinking that they can?t say something to you.
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