Wal-Mart takes aim at $2B used video game market

Retailer planning to allow customers to trade their used video games for credit toward other purchases
Associated Press
Mar 18, 2014

 

Wal-Mart plans to start buying used video games from shoppers at stores in a move that goes after the bread-and-butter business of GameStop.

Wal-Mart Stores Inc. plans to expand its current online trade-in program by allowing customers to trade their used video games at 3,100 Wal-Mart stores in exchange for credit toward the purchase of other items.

The world's largest retailer is taking aim at the $2 billion used video-game market. It's a business that's dominated by GameStop Corp., the world's biggest dedicated seller of video games with the largest and most-established video game trade-in program.

Retailers from Amazon to Best Buy also offer used video game trade-in programs. But Wal-Mart's new program is the biggest threat to GameStop, which for the last three years has drawn roughly half of its profits from buying and selling used video games.

Starting next week, Wal-Mart customers can trade in video games for credit that can be used in both Wal-Mart and Sam's Club stores. The value for each trade-in will vary by the title, console and age of the game, ranging from just a few dollars for older games to $35 or more for newer ones.

In an apparent flight on GameStop's program, Wal-Mart made a point on Tuesday of saying that the credit it will offer shoppers can be used on anything from groceries to a new bike, rather than just other video games.

"When we disrupt markets and compete, our customer wins," said Duncan Mac Naughton, chief merchandising and marketing officer of its US stores. "They'll save money on video games and have the flexibility to spend it however they want."

GameStop did not respond to a query for comment.

Investors appeared to think Wal-Mart's move spells trouble for GameStop, sending its shares down 3.7 percent to $38.30, while Wal-Mart shares rose 14 cents to $74.82.

But analysts suggest the new program isn't necessarily a death knell for GameStop. After all, other retailers have tried to take business in the used game market with "modest" success, said Baird Equity Research analyst Colin Sebastian, but GameStop has loyalty among video game customers and a broad inventory of new and used video games.

"History suggests the competition is unlikely to capture meaningful share," he wrote in a client note.

The trade-in business is appealing for a retailer: When a consumer buys a new video game for $60, only a small portion of its sale price goes to the company. But when a consumer turns around and sells that game back to the company, the company can keep all the profits for itself.

But it's also a complex business that requires systems to track and manage used product inventory and pricing and the ability to refurbish products and restock stores appropriately to balance supply and demand. In fact, Wal-Mart tried a video trade-in program from 2009 to 2010 using kiosks in stores, but that was not a success. The company said it has found a better system that will make the process more efficient.

Still, Sterne Agee analyst Arvind Bhatia said GameStop has advantages that Wal-Mart does not: a large refurbishment facility in Dallas, pricing algorithms and experience developed over a decade.

"It makes sense and feels natural that various retailers that offer new video games would try to offer trade-ins as well," Bhatia said. "However, as many retailers have discovered in the past, buying product from merchants in bulk is quite different than buying one disc at a time from customers."

Another potential challenge in the video game trade-in market is software makers' grudging acceptance of it. Publishers such as Activision, Electronic Arts and Take-Two Interactive have been adding downloadable content and add-ons to their $60 games to help recover any profits the publishers would have made if the consumer had bought a new game versus a retailer's $55 used version.

"You cannot have game and marketing budgets this high while also having used and rental games existing," Cliff Bleszinski, the creator of the popular "Gears of War" franchise, said last year.

Comments

YouMustBeJoking

Watch out Johnny Reed, Wal-Marts trying to take down CR. So this means that Wal-Mart is going to now have a USED video game section?. And also be selling USED game systems? I hope this will be an epic fail. This shows just how greedy Wal-Mart truly is.

Stop It

It won't fail. It's a proven money maker in small mom and pop stores. What does Walmart do best? Shut down mom n pop.

2cents's picture
2cents

I would not believe my best thought if it hit me upside the head. But if Wallyworld were to buy back these games to be destroyed just to keep our young people from becoming more lethargic video game zombies. I guess I would think more highly of the richest family in the world !

A Young Adult's...

This is a power move to eliminate trade-in media stores such as Buybacks. Next stop for WalMart: Used DVDs/blu-rays.

Disgusting. YouMustBeJoking, I am an your side in hoping this is an epic fail.

JMOP

Actually, this is great news for gamers, I being one.

If you have ever traded in a game at Game Stop you get very little. For example: bought a game for $60, traded it in two months later after it's release date for a new game and got a $20 credit. Then they'll will sell your old game with a ticket price of $52.00. They just made a $32.00 profit.
Moral of the story, it's better for the customer when stores compete.

Fromthe419

Somehow I think Walmart is going to put all these mom and pops out of business and you'll get much less than 20 bucks credit. What does Walmart do? eliminate competition and make profits. Personally, if I never go into another Walmart again, I'd be fine with that.

JMOP

Game Stop is definitely not a ma and pa shop. I believe it will be fair competition.

All I can do is wait and see, and hope for great competition.

Contango

Nope! Definitely NOT ma and pa.

You can buy shares of stock of either:

GameStop Corp. (GME)

Wal-Mart Stores Inc. (WMT)

Contango

Re: "put all these mom and pops out of business,"

Creative destruction.

The formula for business success has never changed:

Find a need and fill it.

Fromthe419

Re: "Find a need and fill it." I agree that it is a good business strategy, but at what cost. I find it disturbing that the largest employer in the United States pays minimum wage though. We need more manufacturing jobs to sell through out the world to improve the trade imbalance. We will never see an economic recovery until this happens. I know off topic, but it needs to be said.

Contango

Point:

If "mom and pop" stores can't survive in a more efficient and competitive business environment - maybe they shouldn't.

They need to re-define themselves. Walmart isn't the cheapest in every item. Find their weak points.

Know this: A&P was once the largest retailer in the world.

Where are they now?

---------------------

Re: "mfg. jobs"

Doing 'what'? Building 'what'?

Trade imbalance is coming down due to fracking. Oil is a large import item.

Gotta ask yourself why U.S. multinationals are expanding off-shore.

Answer: U.S. domestic tax and regulatory policies. The 'problem' lies on the Potomac.

Central planning is the cause of the problem and the central planners tells us that more 'targeted' industrial policies will solve it.

Yea right!

More of the disease is the cure. Uh huh.

The Hero Zone's picture
The Hero Zone

I compete against Walmart, too, in several ways. BAM, as well. But it's not impossible to do. Even Sam Walton wrote about it in his book how you can compete against him. You alluded to it but it comes down to doing what Walmart can't: outreach. Community participation. Education.

I offer more than just packs of cards for sale. I offer insight, conversation, and tournaments. I offer an environment people want to spend not just money but time inside socializing. Local hardware stores (or even big box ones) offer lessons, advice, and will show you how to do a project. It's not impossible and actually sets you apart vividly against a generic retailer.

For a bounty of other ways to compete against Walmart successfully:

https://www.google.com/search?q=...

In this case I would suggest that ma-n-pas who are worried about this look into having community events, contests, tournaments, etc. starting now.

For ideas, refer to this YouTube channel which promotes donations to charity for "speed-running" older video games:

http://www.youtube.com/channel/U...

Contango

@ Mr. Morgan:

Reads like a possible future column.

Got my interest.

"Thinking is the hardest work there is, which is probably the reason why so few engage in it."

- Henry Ford

The Hero Zone's picture
The Hero Zone

Thanks for the suggestion! I'll note it down to write one about this topic in a bit more depth.

KURTje

From the419, don't most Wal-Mart workers get govt. assistance since most aren't full-time?

deertracker

Yes they do!

Contango

Re: "don't most Wal-Mart workers get govt. assistance since most aren't full-time,"

Thanks in large part to the hourly requirements for employer healthcare coverage under Obamacare.

The Bizness

Thanks in large part to greed by Wal-Mart. Startbucks offers health insurance to their hourly employees, why can't Wal-Mart? Because Wal-Mart cares about one thing, and one thing only, $$$$ and that is why capitalism sucks.

Contango

Re: "capitalism sucks."

So you're a public employee?

Using "greed" as the rationale for the difference in the cos.' philosophy is sophomoric and overly simplistic.

How many lower socio-economic people can afford to spend a few dollars for a cup of coffee?

Totally different markets, clientele and product mix and therefore a poor comparison.

So what form of govt. was Soviet Eastern Europe under?

deertracker

Wal-Mart was this way long before Obamacare! Next!

Contango

Explain the reason for the recent phenomena of the reduction in the number of hrs. worked per employee by most retailers.

They're trying to get below the 29 hr @ wk. level.

Next!

The Hero Zone's picture
The Hero Zone

I believe it is called the "29/49 Effect". If not then it is similar. Here's a good article describing it:

http://www.mantecabulletin.com/a...

I believe that Cedar Point practices something similar by limiting how many hours an hourly employee can work in a year before being laid off. It'd be better for someone in their HR to comment on their policy specifically, but I can offer this lead because of all the employees I serve. This paragraph is said neutrally, I hold no contempt for the park being a five year "veteran" of it myself.

Stop It

My son worked there for summer breaks in high school and college. He worked many hours of overtime in one days time but never hit that magic forty hour week. Sometimes by just a half hour. Bonuses were promised but never delivered. CP knows just how to run the show to the brink. They aren't the monopoly of amusement parks for nothing.

KURTje

Thaz right deer...we know! When it help capital (the few) it is called American. When it helps the people the few call it socialism.

Contango

Re: "When it helps the people the few call it socialism."

And capitalism has never helped "the people"?

Capitalism has raised more people out of poverty worldwide than socialism ever has and ever will.

Socialism = poverty.

Just ask “the people” in former Soviet Eastern Europe who are now free of the tyranny of socialism (collectivism).

deertracker

Ignore pooh. He's simply trying to increase the comment count. He makes no sense, is always off topic and he's drunk. Yes, even this early!

Contango

Re: "makes no sense,"

You're right - you don't.

Just more of your off-topic nonsense, 'turd.

Dr. Information

Spot on Contango.

KURTje

Yes tracker. You are correct. Why is okay for us to fund migrant help/care, those who work at Wal-Mart, local airports & more, yet if a single mom gets help that is a crime. Business should support itself on its own.

Contango

Re: "Business should support itself on its own."

Agree. And charity should be used to finance the social safety net.