The GameStop Craze: What Amazon Sellers Need to Know

In late January, the news cycle was dominated by the remarkable rise of GameStop stock (GME). GameStop seemed like an unlikely candidate to have its stock skyrocket in value, but a unique set of circumstances caused it to do just that. Both new and veteran investors alike were scrambling to determine what to do with the red-hot stock.

The entire episode was a fascinating look into the stock market and, perhaps even more importantly, into the economy itself. There were some great lessons to be learned for Amazon sellers as well. In this in-depth guide, we take a look at what exactly happened, some lessons that can be applied to selling on Amazon, and what you can do next to stay ahead of the competition. 

What happened with GameStop’s stock?

Entering 2021, GameStop’s stock had been on a steady decline since 2015 when it traded in the neighborhood of $30 to $45 a share. GameStop was trading for under $10 a share by 2019 and was hit particularly hard by the COVID-19 pandemic in 2020. There were already concerns that GameStop’s business model, which relied heavily on physical locations, was in trouble long-term; nation-wide shutdowns only exacerbated the problem. Stock prices fell to $2.57 per share in April of 2020 and spent most of the year under $10 before rallying back to around $15 in November.

This seemingly unspectacular stock took a very interesting turn in January. Members of the online forum Reddit – who posted in a subreddit called r/wallstreetbets [*EDITOR’S NOTE- the preceding link to the subreddit is filled with graphic language. We are sharing it with you so you have all the knowledge at your disposal.] – began speculating that there might be a major opportunity to “short squeeze” the GameStop stock.

Short squeezing

The concept of short squeezing may seem complex to those unfamiliar with the stock market and day trading. “Short selling” is a practice in which an investor sells borrowed stocks at a set price one day in anticipation that they will be able to buy the borrowed stock at a lower price later to cover the shares that they borrowed.

For example, GameStop was trading for $20.57 a share on December 23. Let’s say a finance investor who believes that the price on GameStop will drop could borrow 1,000 shares and sell them to interested buyers at $20.57 each for a total of $20,570. If the stock dropped to $10.00 before the investor had to make good on the stocks he or she had borrowed, that investor could buy 1,000 shares for $10,000. This would net them a profit of $10,570 ($20,570 minus $10,000), less interest and fees.

Major hedge funds and Wall Street traders use shorts to make money on stocks they believe will fall in value. They do so understanding the risk that they could wind up buying the stocks they owe for more than what they had sold them for if the stock price goes up. And this is where short squeezing comes into play.

If prices begin to rise on a heavily-shorted stock, the hedge fund or investor that has the short position will be forced to buy shares to limit their losses. This surge of purchases will push the price of the stock even higher, which puts more pressure on investors holding their short positions to buy. And as more and more investors buy the stock to keep raising the price, this process can keep building on itself.

The 2013 movie The Wolf of Wall Street starring Leonardo DiCaprio reviews some of this strategy, at least during the 1980s and 90s.

GameStop stock prices surge…

This exact scenario played out on a massive scale in late January. Fueled by fellow Reddit posters and social media posts, both major investors and everyday people opening new accounts poured tons of money into buying up GameStop stock to take advantage of the short positions of thousands of United States hedge funds.

With investors buying up GameStop stocks and companies with short positions scrambling to cover their devastating losses, GME climbed from $39.12 per share on January 20th to a staggering $483.00 per share on January 28th. There seemed to be no limit to how high the stock’s price could go.

…then come crashing down

On January 28, Robinhood, Webull, and other trading platforms that were most easily accessible to new investors halted the purchases of GME and a handful of other volatile stocks. In an unprecedented move, brokerage firms like Robinhood were allowing users to sell their shares of GameStop but not allowing them to buy shares. With everyday people left powerless to buy the stock and panic setting in among many of those holding it, GameStop plummeted to $193.60 by the end of the 28th. 

It briefly rallied back to $325.00 on January 29, but the damage was done on the 28th as that day off from new buyers gave hedge funds with big short positions the chance to regroup. By February 4, GME was back down to just $53.50 a share.

Important Lessons From GameStop Stock’s Rise and Fall

Short sellers reportedly lost over $10 billion in the events that transpired in late January. People who bought stock in GameStop had varying degrees of success. Some made massive amounts of money through buying low and selling high, while others bought in near the top of the spike and were forced to take big losses when the stock’s price came back down. Some of the lessons these stock traders learned are applicable to Amazon sellers as well, especially sellers that have immense visibility into their data.

An Amazon profits and accounting tool can surely help you dive deep into all your financial data, assess and act on trends, and help you forecast your financial model.

 

1. Act quickly and decisively on trends

If you decide that chasing trends isn’t something that interests you or works well within your niche, that’s a perfectly reasonable stance to take. But if you do decide that you want to try to take advantage of Amazon trends, you must do so as quickly and decisively as possible.

Sales prices will fall as more and more sellers enter the market and the trend will eventually run its course as well. You need to get in on the boom early to reap the rewards. Have a plan and budget in place before the next big thing comes along so you are ready to strike as soon as it does.

2. Have an exit strategy in mind

No trend lasts forever. As the saying goes, what goes up must come down. GameStop traders who refused to sell their stocks during the price surge are now stuck with an undesirable stock that is unlikely to ever reach those types of heights again.

From an Amazon perspective, this would be like buying way too much stock in a trend and refusing to sell at the going price, waiting for the price to rise to a certain point and eventually missing your chance to make a profit at all. Have clear goals in mind for pricing and inventory, and be ready to adjust accordingly depending on how things are developing.

Related: 8 eCommerce statistics to help revolutionize your digital strategy.

3. Only take risks with money you can afford to lose

While many everyday people turned a nice profit buying low and selling high on GameStop, plenty of others bought in high and took big losses when the stock fell. The people who invested responsibly with money they could afford to lose weren’t too negatively affected by the loss. But those that went all-in with hopes of getting rich quick were financially devastated.

Amazon sellers should always be looking for ways to improve and innovate on their businesses. Perhaps you have an idea for a new brand new product or want to dabble in a niche outside of your established comfort zone. You should definitely take these types of calculated risks. But do so with money and resources you can afford to lose. This will reduce stress and keep you and your family financially stable in the event that the risk doesn’t work out.

4. Remember, you are playing by someone else’s rules

It’s impossible to say how high GameStop’s stock price might have gone if not for the various brokerage firms shutting down the market and prohibiting people to buy the stock on January 28. But for however unfair or controversial the move was, stock traders were at the mercy of the platform.

This serves as an important reminder to Amazon sellers that no matter how successful your business is, you are still playing in Amazon’s sandbox. It is your responsibility to keep up to date with Amazon policy changes and to make sure that you are always adhering to them to keep your account in good standing. 

As an example, Amazon recently updated its communication policies surrounding their buyer-seller messaging system. Luckily we made some changes to help FeedbackWhiz customers with new pre-built email templates, request a review button, and TOS compliance detections. Check out our short video below to learn more.

5. “Get rich quick” ploys are not sustainable

Opportunities sometimes come along for stock investors or Amazon sellers to make a quick buck flipping something based on a hot trend. But these trends come and go. It isn’t a bad idea to invest a small amount of time and finances into going after trends and trying to strike gold, but even successful attempts at doing so will only work in short bursts. No get rich quick ploy can ever replace or outperform a strong business built on good foundations and hard work.

If you’re looking to get aggressive, we found this article on high low pricing to be extremely informative.

Actionable Steps All Amazon Sellers Can Take

There’s a lot to take in after reading this article. So before you bookmark this page, we’ve got three actionable steps for you to help put your business in a better state today than pre-GameStop stock craziness.

1. Monitor your listings for changes and competition

When things are changing and potential trends are starting around your products, you should be the first to know. It is important to keep a close eye on all of your listings to make sure that you are aware of potential listing hijackers that could undercut your prices, steal your buy box, or change your title to confuse potential buyers.

Spikes in product reviews received can also be a sign of a positive trend in increased sales or a negative trend in competitors leaving fake negative feedback. FeedbackWhiz offers 24/7 monitoring on all of your products with alerts for sellers looking for a hand with staying on top of their listings.

2. Always keep up with what’s going on within your niche

When you access Amazon’s main page, the very first thing you see on the drop down menu in the top left corner is the “Trending” tab. This includes “Best Sellers”, “New Releases”, and “Movers & Shakers”. Amazon sellers should get in the habit of routinely checking these pages, especially within their business’s category. Whether you decide to react to trends or not, you should at least be aware of them so that you aren’t caught off guard if they have a positive or negative affect on your business.

3. Assess all your data

And it isn’t only new trends you should be keeping up with. Your own data points and sales are the most useful indicator of how things are going and what is and isn’t working in your Amazon store. What are your bottom five performing products? How does the profit you made on a specific product in March compare to how it did in February? Or how about this March versus last March?

FeedbackWhiz’s Profit and Loss Tracking Tool offers all of this data and much more in the form of easy-to-read charts and tables and comprehensive pages that allow you to see all of your business’s most important statistics with just a few clicks of your mouse.

Related: The top 6 reasons to use a profits and accounting tool.

GameStop Reminds Us To Keep Primary Focus on Long-Term Strategies

The rise and fall of GameStop’s stock price left billions of dollars trading hands and completely dominated the news cycle for about a week. But less than one month later, the company’s stock price and Wall Street have returned to normal. The same happens on Amazon; one product or category might blow up, especially during the fourth quarter, but in the end things eventually even out and supply catches up to demand.

If your business puts you in position to capitalize on big spikes or trends, don’t hesitate to do so. But in the long run, remember that enjoying success is a marathon and not a sprint. Putting too much time and money into chasing the next big thing will only result in disaster when a trend doesn’t go the way that you or the experts predicted it would. That same time and money invested into well-researched products and customer service are far more likely to yield positive gains.

FeedbackWhiz’s Amazon seller software can empower you to dive deep into your data, assess trends, receive critical alerts for listings and updates, and deliver automated email campaigns to stay in contact with your customers. Check out a free demo and start your 30 day free trial.