Why GME is divesting from Canada and France

Just wanted to provide some insights regarding RC’s post on selling storefront operations in Canada and France.

To provide some background, I managed the P&L’s and all FP&A related metrics for Canada and parts of European operations at an e-commerce giant in my past life.

First, let me breakdown the crux of the issue. Companies depend largely on financial forecast(s) for operational expenditures (opex) in any given year. For companies with tangible/physical goods being sold, all financial models account for “seasonality” - which is nothing more than historical patterns of business activity or demand during a specific period of the year (ex: Christmas season, black friday/cyber-monday, etc).

In the US scaling up or down “headcount” (personnel or labor costs) are relatively simple. US personnel are classified as “at will employment” which generally lets employers terminate employment without extensive notice or justification.

In Canada and France, they have stringent notice requirements, severance obligations, and employment insurance resulting in extended timelines for terminations, mandatory payouts for line items like severance payments, and difficulty scheduling (due to strict rules in France as an example for changing work hours).

This causes an immense amount of overhead costs and frustration for the company during high demand seasons, where they need to scale up the number of employees (ie holiday season) in Q4 in countries like Canada and France, and oftentimes the ends do not justify the means, which means that the increase in revenue is offset by the labor costs and termination costs associated with Canadian and French employees, which leads to negative cash flows in those regions respectively.

Add to that the complexity of inventory management, training schedules, and workforce planning, and the business model becomes untenable.

Having worked in an adjacent e-commerce company seeing this play out quarter of quarter in real-time, I think RC is doing the right thing by decreasing GME’s footprint in these regions. The rules/laws/regulations at this time simply do not allow for a business to successfully and adequately scale.