A report suggests that GameStop's used sales account for nearly 50% of its business, and this should allow the retailer to thrive even in a recession.
Posted by James Brightman on Friday, March 07, 2008
While a number of retailers and businesses seem to be feeling the pressure of the near-recession economy in the U.S. there's been much talk about the video game industry being "immune." Perhaps the best example of this is leading retailer GameStop, which has been one of the prime beneficiaries of the exploding video game market. Over the recent holiday period, the retailer generated an impressive $2.3 billion in sales.
And while the game companies certainly don't like it, it's GameStop's used business, not new games and hardware, that are really driving the bottom line. According to a Forbes report, new software sales are only 37.7 percent of total sales compared to 47 percent for pre-owned games and hardware. Accessories and peripherals accounted for 15.3 percent.
Forbes' senior equity analyst Taesik Yoon suggests that it's this huge pre-owned business that will allow GameStop to prevail in a sour economic environment while other companies might struggle. "...despite the tepid outlook for consumer spending, the quantitative model employed by the Forbes Growth Investor suggests the company's outlook remains bright over the near term," he said.
Yoon added, "...no rival can touch GME's used-game business. Indeed, Electronics Boutique [which merged with GME] represented the only real threat in this area. Furthermore, GME's Edge program promotes customer loyalty by awarding bonuses for trade-ins and purchases. In addition, pressure on new game sales arising from deteriorating consumer spending trends should be offset by used-game sales as shoppers seek to save money. This bodes particularly well for GME, since profit margins on used game sales are more than double those of new titles."
Yoon noted that GameStop should continue to see strong growth from the expanding family-oriented games market, the Wii, and more people getting into online gaming. GameStop might also "see a nice boost in the second half of the year as consumers start spending their federal tax rebate checks."