Analyst: GameStop's Used Games Business Gives it 'Recession Edge'

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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."

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I hate Gamestop

Gamestop is cool. They offer a lot of good deals.

I don't get why a gamer would hate them...

I am Washu-bot B, loyal servant of Final-Fan, the greatest scientific genius in the universe!

A gamer might hate them because they will buy back games at lowish prices, put them up for sale used at $5 less than new, make tons of money off the sale, and have none of it go towards the developer. 50% of $2.3 billion is 1.15 billion. That is 1.5 billion dollars that is *not* being put into developing new games.

This especially hurts short games and games that sell to casual gamers (who will not necessarily buy first-day); as time goes on, they have more chances to buy back a used game which will then sell instead of a new copy. Remember; off this sale the developer gets *nothing*.

So if you don't think thats a bad thing, then by all means keep shopping at Gamestop. I, for one, choose to vote with my dollars and buy new games from other retailers. It may cost me more, but at least I am not being a leech on the industry.

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I find it ironic that Nintendo will spend millions of dollars to chase down pirates in 3rd world countries while Gamestop is costing them billions in revenue each year.

You have to figure that a single copy of Mario Galaxy can be sold 5-10 times and Nintendo obviously only makes money on the FIRST sale.

Some may argue that some of those people wouldn't have bought the game unless it was used anyway, but even if half of them would've bought new, that's still 2-5 sales Nintendo is missing out on.

"I mean, c'mon, Viva Pinata, a game with massive marketing, didn't sell worth a damn to the "sophisticated" 360 audience, despite near-universal praise--is that a sign that 360 owners are a bunch of casual ignoramuses that can't get their heads around a 'gardening' sim? Of course not. So let's please stop trying to micro-analyze one game out of hundreds and using it as the poster child for why good, non-1st party, games can't sell on Wii. (Everyone frequenting this site knows this is nonsense, and yet some of you just can't let it go because it's the only scab you have left to pick at after all your other "Wii will phail1!!1" straw men arguments have been put to the torch.)" - exindguy on Boom Blocks

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And don't forget it was proven that gamestop sometimes shrinkwraps
or just sell used opened games as new....

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I agree... as terrible as this is to say, I actually support pirating games more than I support buying used games from a store like gamestop (I do neither). In both cases, the people responsible for making the game get nothing; in the case of pirating, at least there are no middlemen ripping you off before you play the game

That is not to say that I don't play games that aren't new; I will borrow games from friends, loan games to friends, and heck, i'll even trade directly with friends. However, the addition of a middleman makes it a helluva lot worse, in my mind... at least since that middleman is also a huge seller of new games, which are the direct competition for used titles.

I bet the console manufacturers cannot wait till Digital Distribution takes over...

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fksumot tag: "Sheik had to become a man to be useful. Or less useful. Might depend if you're bi."

1) WiiFit will outsell the pokemans.
  Current Status: 2009.01.10 70k till PKMN Yellow (Passed: Emerald, Crystal, FR/LG)

I just prefer new games. That feeling of opening it, i dunno its just cool. I prefer to wait a while, save money and get it new. And i never sell my games. I love going back to the games i loved, play them, remember, its just cool! But i understand that for some ppl GS is the only way to afford games, so i dont blame anyone for using it.

Although I think buying newish used games from a store like Gamestop is not a good idea (too expensive for a used game) I like that I can find older games at a decent price in pretty good condition ... I can't really fault them for buying used games at such a low price because of the risk they probably take. If you have a game that sells a high percentage of its copies early on, and then you buy a ton of these back, you may only be able to sell a small portion of these games regardless of how low the price becomes; this (probably) isn't that common, but if you sell a game at twice the price you bought it for you have to sell 50% of your inventory before you break even on buying back that game.

Gamestop is the best rental service on Earth. You get 7 days to try out a used game with the option for a full refund, so you can really go all out and try out games you're completely unsure about. I agree it hurts developers, but that's just the nature of the beast. eBay and craigslist are pretty widespread sources of finding used games too.

There's other good tricks that Gamestop allows. In case you ever scratch a game to where it's unplayable, you can buy a used copy from Gamestop and replace it with your scratched copy. Just tell them the game didn't work when you return it. 

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