Dive Brief:
- Boston Consulting Group filed a lawsuit against GameStop that seeks $30 million in damages over the retailer's alleged "bad faith refusal to pay fees" owed to the consultancy under a written agreement.
- More specifically, the firm said in its complaint that, starting in mid-2020, GameStop has "refused to pay significant amounts" of BCG's fees and demanded discounts "with no justification," as well as refused to continue "contractually-obligated meetings" tied to its fees.
- GameStop did not immediately respond to a request for comment.
Dive Insight:
According to BCG, the consulting firm started working with GameStop in 2019, when the company was "on life support" and "[h]emorrhaging customers."
The retailer's then-general counsel, Daniel Kaufman, who later became GameStop's chief transformation officer, led the relationship. BCG was brought on to "evaluate its operations and develop solutions that would enable a corporate transformation to ensure its continued viability," according to the firm.
Retailers in distress or sales tailspins almost universally engage outside consultants to help right the ship. Their fees run high, and can amount to millions even for companies in bankruptcy struggling to pay their vendors.
BCG said the agreed-on fee structure for its work with GameStop was based on projected profit improvements resulting from the firm's recommendations. Its work revolved around growing revenue through a video game ecosystem and manufacturer partnerships; finding cost cuts and operational improvements; driving category improvement; growing a pre-owned electronics business; pricing; and GameStop's loyalty program, among other areas of the business.
The trouble in the relationship between the consultant and retailer started after Kaufman left the company in June 2020. Starting with Jim Bell's appointment as chief financial officer, GameStop has "since failed and refused to perform as required" under their agreement, BCG alleged.
Bell "often demanded various unsupported reductions to BCG's fees, despite BCG's unequivocal satisfaction of the agreed-upon profit improvements," BCG alleged in the complaint.
The payment disputes continued after Bell left the company early last year.
Since then, other executives have turned over in the wake of activist investor Ryan Cohen's ascent to the chairman role in 2021. Cohen came to GameStop vocally critical of the retailer's turnaround plans and efforts up to that point and set about revamping its management and plans.
In other contexts, Cohen has offered veiled criticism of the work of retail consultants. After recently taking an activist stake in another company struggling to make good on its transformation efforts, Bed Bath & Beyond, Cohen said of the retailer's plans: "From our vantage point, Bed Bath's strategy looks far better in a PowerPoint deck than it does in practice. It is full of 'principles' and 'pillars' that high-priced management consultants probably thought would placate information-hungry analysts and satisfy shareholders."
In GameStop's most recent earnings call, CEO Matt Furlong said that "we ended relationships with high-priced external consultants who were costing the company millions of dollars per year." It's not clear if that included BCG or not.
