Specialist retail risks becoming irrelevant - but it doesn't have to be that way
Like most of the country, it seems, I wanted to buy a copy of Modern Warfare 3 this week. I had a quick look at prices on Amazon, and checked my local supermarkets - Tesco and Sainsbury. Tesco had the best price, but was out of stock each time I went in for groceries. Sainsbury is offering similarly good value when bought with £30 of groceries, so I'll probably pick up my copy there this weekend.
It struck me, reading this week's dismal financial report from GAME Group, that at no point in this process did I even entertain the idea of buying the game from a specialist retailer. Online, I turned to Amazon; offline, I looked to supermarkets. At a pinch, I might have ended up in HMV. I'm struggling to recall the last time I walked across the threshold of a specialist games retailer in the UK - it was probably when I bought my Xbox 360 Elite a couple of years ago.
It's just an anecdote, of course, but it can't be a good sign. I'm a young professional with a reasonable disposable income and a videogames habit which would make most of the characters in Trainspotting wonder if an intervention was called for. If people in that bracket are walking away from specialist retail, something has gone badly wrong.
It seems a little cheeky for GAME to complain about the decline of the long tail in the same report that champions the 40% margins it enjoys in second hand product
Of course, GAME is quite right to point to general market trends as a contributing factor. There are broad factors, like the state of the economy, which this year finally started to make a genuine impact on the wallets of the nation. Food, fuel, energy and rent are all more expensive than they used to be, by a noticeable margin. Games aren't top priority, and cheaper alternatives to buying new products are more appealing even to those with reasonable incomes - I'm now a LoveFilm subscriber, for example, which has certainly reduced the number of game boxes stacked up in my living room.
Then there are more narrow factors within the games business which also impact on retailers like GAME. We've discussed those things at length on many occasions - the move to digital, the rise of social and mobile gaming, the resurgence of indie products and the increased focus on the games sector from retail giants like Tesco. None of these things are positive indicators for specialist retail.
In addition, there's an interesting indicator to be found in GAME's own statement this week. The chain notes that opening weekend sales aren't really the problem - as Modern Warfare 3 proves, immense opening weekends are still perfectly possible for headline games. Rather, the issue lies with the long tail, which is getting shorter and thinner by the day. The shelf life of games has been eroded, it seems, which means that specialist retail limps along between blockbuster launches, rather than being sustained by a robust underlying business.
That's a demon of its own creation, to a large extent. Nearly a third of GAME's sales come from the second hand market, which the firm has been extremely aggressive in promoting. Second hand sales don't cannibalise first weekend sales, for obvious reasons, but they do hammer down long-tail sales of new product. It seems a little cheeky for GAME to complain about the decline of the long tail in the same report that champions the 40% margins it enjoys in second hand product.
Yet there's a second factor which impacts on the long tail, and that's the gradual decline of the casual market for boxed videogames. It's not unreasonable to suggest that the people making pre-orders and paying full price are the core audience for these titles, while the long-tail sales - usually made at lower prices and perhaps as impulse purchases for browsing customers - are to more casual players. Beyond the distortion created by its own focus on second hand, GAME's figures imply that these customers are abandoning boxed games - or at least, abandoning specialist retail.
Why is this? One could posit several possible reasons. Social and mobile games certainly impact this market more than they impact the core audience, of course. This audience is also more likely to drop games from their shopping list when they feel an economic squeeze than the core audience is, since their priorities are different. Deeper reasons may also have an influence, although we're into the realms of the debatable here - I'd argue, for instance, that the current generation of consoles have brought with them an excessive focus on certain tentpole genres and themes to the exclusion of the broader array of ideas which came from the relatively low development costs of the PlayStation and PS2 eras.
Regardless of which combination of reasons you choose to believe, it's a worrying trend for the industry as a whole - and a deeply distressing one for specialist retail. Stores can't survive on a few big launch weekends; they need a strong underlying business as well, or it's impossible to justify keeping their doors open. Right now, it's not clear where that business is going to come from in future.
These are not settled markets, and the chance for an established retailer with strong publisher links to make a serious impact does exist
Yet in the midst of this distress, there is also opportunity. GAME doesn't have to go quietly into the night, and nor do any other major specialist chains - but with the exception of the aggressive GameStop, they all seem surprisingly willing to be led off to the glue factory without protest. GAME boss Ian Shepherd recently suggested to consultant Nick Parker that the company could end up selling contracts rather than physical products, which suggests that at least there's some thought going into the company's future - but this vision isn't exactly well fleshed out (not least since device manufacturers and networks are generally working towards a future where the contract process is largely carried out on the device itself, eliminating the need for a store) and feels more like a hopeful aspiration than a plan.
Look around the business transitions taking place, though, and you see all manner of disorder which an established retail chain could take advantage of. Digital distribution is on the rise, but it's not exactly signed, sealed and delivered yet. Prices remain ludicrously high on most digital services, download speeds are still questionable in many parts of the world, and there's still a decent proportion of the population that can't or won't make credit card purchases online. Online retail of boxed product, meanwhile, is dominated by Amazon but not exclusively so.
These are not settled markets, and the chance for an established retailer with strong publisher links to make a serious impact does exist - but it would require a major restructuring of the business, a change in focus and quite probably a change of management. GAME and other specialist retailers don't have to disappear - but they have a lot to prove if they want to show their ability to avoid that fate.