GameStop Corp. (NYSE:GME)
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The Company is a retailer of video game products and PC entertainment software.
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The Company is a retailer of video game products and PC entertainment software.
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GameStop is a company that is facing three problems: digital distribution of median (e.g. games), online sales, and growing hostility from game publishers in regards to after market sales. The first two problems might be something that GameStop can overcome, although sources like Valve's Steam, Microsoft's Xbox Live Arcade, and the PlayStation Store are giving consumers more options digital median, there is still enough demand for physical media of games that strong sales will continue for the foreseeable future. However, online sales are an issue for GameStop in that there is more competition online (in both price and selection) that physical stores just can't compete with.
However, one longer term concern for GameStop is sales of previously owned games and the growing hostility form game publishers to it in the form of one time codes to access online content as part of the sale of the retail game. Since one of the cornerstones of GameStop's business is the sale of previously owned games, the devaluation of purchased games through the use of one time codes will directly impact the amount of money GameStop can get on their sales. While this might not be enough to cause major problems now, if the trend continues it is definitely something that they will need to contend with.
Have you considered (just curious) that having to lower prices on preowned games might mean selling more of them?
For example, Gamestop lowered Mortal Kombat Preowned to $45.00 due to the One Time Use Code. Same goes for Dead Space 2.
While Gamestop takes a $10 hit to profit margins per unit of sale, the video gamer gets to buy the game $10 cheaper. In today's economy in which video gamers struggle to find a job and a good paying one at that every dollar counts.
Video Games during a massive great recession will most certainly mean lower profit margins for all retailers as prices most certainly have to come down. Hardware Console prices keep getting lowered. But, as prices drop....video gamers that couldn't afford to buy video games and hardware a year ago....may now be able to afford them now.
Pushing more units out the door can make up for profit margin hits.
Plus, Gamestop just announced integration of IMPULSE has finished. Again...Red Thumbers and Stock Analysts are ignoring Impulse. Eventually, it will be far too difficult for retailers like BEST BUY to continue to ignore Impulse.
I did consider that, but I think that the downward pressure on the used games, if the trend of one-time codes continues, will likely eat the margins that GameStop is currently getting as consumers trend more towards either just buying the games at full retail price or not bothering if there is a one-time code involved.
Likewise, IMPULSE might be a good thing for GameStop in the long run (i.e. transitioning to the online marketplace) but I don't see it stealing enough market share away from existing sources (i.e. Steam) to have them outperform the market in the near to mid-term.