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Retail

Game Plan

Fri 18 Nov 2011 8:04am GMT / 3:04am EST / 12:04am PST
Retail

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.

20 Comments

Tommy Thompson
Studying Artificial Intelligence (PhD)

110 0 0.0
Another thought provoking article Rob, thanks again.

I wonder whether there is a change in buying habits amongst more core gamers. Naturally this may be driven by the economic downturn, but also the competitive nature of retailers both high street and online to have consumers impulse buy titles.

It's rather common nowadays that if you don't have the money to buy the game week 1 and you're willing to wait, then it's best to just hold off for 6-10 weeks. During this time, most titles will begin to drop in price by say 25-40% as retailers want to clear stock. For those with even greater patience, you can wait 2-3 months and pick up the game for 25% of the original RRP. You only need to jump onto Amazon, or Play to find the likes of Dead Space 2 for 10 and Deus Ex:Human Revolution is available for less than 15 online.

You could argue it is a combination of high release prices followed by quick price cuts on new copies. While the early adopters and hardcore fans of a title will pay full price on day one, patient consumers may be holding retailers to ransom as they wait for prices to drop, or pick up a second hand copy with a 25% cut in price.

Posted:2 years ago

#1

Stephen McCarthy
Studying Games Technology

205 0 0.0
I started to hold out for some games, I plan to get some when it goes GOTY so i get all the dlc for about the same cost as the game when it came out.

Posted:2 years ago

#2

John Bye
Senior Game Designer

480 451 0.9
If Game want to save their retail business, they need to slash the number of stores (at one point they had two in Guildford on adjacent streets, plus a big concession in Debenhams just down the road), put more emphasis on back catalogue (an area that no UK retailer really covers, and where online retailers are notoriously unreliable - available in 3-5 days is code for we don't have any but we'll happily take your money on the off-chance our supplier can find us a copy some day), improve the layout and organisation of their stores and train their staff better (to improve discoverability), become more competitive on price (their own website is often cheaper than their stores, and everyone from Tesco to Toys R Us undercuts them at retail) and work with hardware manufacturers to offer some kind of in-store digital service for people who can't or won't download stuff at home to keep themselves relevant in a changing marketplace (selling points scratch cards and download vouchers isn't enough). I'd also suggest offering more game-related merchandise (t-shirts, books, comics, action figures, collectors editions - all things you can upsell people on which supermarkets don't sell and you can't download).

Posted:2 years ago

#3

Darren Stewart
Videogame investor

52 17 0.3
Another great article Rob and many thanks for not using the headline "GAME over?"

I think I'm agreeing with you when I say that the issues for GAME are actually issues for the overall market. GAME have grown market share yet when the market is down double digit percentages (again) there's not a lot they can do except downsize or diversify. They are really too big (in terms of overall market share) to do anything which can make up for a market which is dropping 10%+ year on year.

That doesn't excuse them for not trying (and I think to be fair to them they have been trying) but as things currently stand all the trends in gaming seem to be making life harder for GAME.

Like I say, they can either downsize and accept their fate as a smaller bushiness or diversify and find new substantial markets beyond gaming. At the moment they have a very large customer base and a pretty good loyalty card scheme so they do have a head start when trying to move into other areas. But, as time goes on, it looks like that head start will get smaller and smaller so they probably need to act now (or a year ago would be better).

http://www.bougafer.com - investing in video games



Posted:2 years ago

#4

Darren Stewart
Videogame investor

52 17 0.3
For some reason I can't edit my last comment but I wanted to just end by saying...

In terms of the overall market then I think the industry (and I'm looking at the publishers mainly) need to find the next genre of gaming which is going to drive the industry. What we seem to have learnt from this holiday season is that consumers are just a bit tired of the same old genres even though they're bigger and better than all the previous iterations.

The next Guitar Hero. The next Wii. That's what the industry needs and it can't come soon enough.

http://www.bougafer.com - investing in video games


Posted:2 years ago

#5

Tommy Thompson
Studying Artificial Intelligence (PhD)

110 0 0.0
@Darren

Can it be argued at this stage that consumers are tired of these genres? Yes we are seeing a lot of heavily exploited genres and IPs on store shelves, but the sales figures (not necessarily those of GAME and GameStop) suggest people are still buying. Gears of War, FIFA, Battlefield, Skyrim and (despite the user meta critic reviews) Call of Duty are still selling exceptionally well. Though I am curious to see how well titles such as Super Mario 3D Land, Zelda: Skyward Sword, Need for Speed and Assassins Creed fare this holiday season, and whether they suffer as a result of market exhaustion.

Posted:2 years ago

#6

Anthony Gowland
Lead Designer

172 525 3.1
With a shift in focus, specialist retail won't die. In the same way that there are still dedicated highstreet butchers and fishmongers, when supermarkets sell meat and fish cheaper.

Just need to offer a specialist service, rather than trying to compete with them on the same grounds of "selling only the top 20 games at the cheapest price" - a battle supermarkets (and huge online retailers) will always beat you at.

Offer an experience, a level of knowledge, and a range of goods that are unique.

Posted:2 years ago

#7

Matt Stoneham
Senior Technical Artist

1 0 0.0
" consumers are just a bit tired of the same old genres"

"The next Guitar Hero. The next Wii. That's what the industry needs and it can't come soon enough. "


Seem to be slightly contradictory statements to begin with.

No doubt Guitar hasn't been around for a while due to over saturation of the market and dwindling sales.

The Wii appears to be heavily reliant on the very casual market the figures imply are deserting in droves. Additionally, this has come with the cost of the faithful, ever-spending 'hardcore' abandoning the platform. Very low usage statistics relative to PS3/360 add further weight to this argument as their primary market fails to re-invest in new software for the platform over time. On this basis, it would also seem likely that a large percentage of their current user base will not invest in next generation hardware. One might wonder how successful their next generation of hardware can be given these factors.

Posted:2 years ago

#8

Andrew Fisher
Writer

20 0 0.0
The Wii (and to some extent the DS) have bucked the trend for "short tails" - there are a lot of games that continue to sell well weeks and months after release, bringing in income.

And I feel it is important for there to be a presence for gaming on the High Street. Maybe the days of the specialist games only store is reaching a conclusion - a wider remit of music, gadgets and related merchandise would seem to be the best way forward, given how well items such as Angry Birds speakers are selling...

Posted:2 years ago

#9

Graham Simpson
Tea boy

219 7 0.0
When a company has the market value of 28m and yet has net cash of 100m in the bank and is forecast to make sales of 1.5bn this year I'd call that an anomaly.

Posted:2 years ago

#10

Sam Brown
Programmer

235 164 0.7
@Anthony Gowland: The trouble with the dedicated-highstreet-butchers-and-fishmongers-versus-supermarkets argument is that the butchers and fishmongers are (however rightly or wrongly) perceived to sell better quality products than the supermarkets. Specialist game retailers are selling exactly the same product as the supermarkets in there case. A better example might be specialist bookshops, and they're not fairing as well as butchers and fishmongers if closures near me are anything to go by.

Posted:2 years ago

#11

Klaus Preisinger
Freelance Writing

1,066 996 0.9
If I go into a Media Markt, or other electronic retailer, I find a large selection of games for all relevant platforms, combined with large section of rather odd games. But if they get the shelf space, they must be selling, just not to me.

Enter a "specialized" games store and you get a bunch of console stuff, a lackluster selection of PC games and an overall atmosphere build for teenage consumers. The specialization is not towards games, but towards a certain type of game consumer. That might really not be enough.

Posted:2 years ago

#12

Andrew Goodchild
Studying development

1,234 394 0.3
Over the course of this hardware generation, Game has cut down space for new titles that arn't either new chart titles or the current CoD/Fifa, which they keep visible for a little longer.
6 years ago at the tail of the original Xbox/ps2 era you could go find quite a few nice cheap first hand catalog gems, and it was a joy to route through the old PC titles.

The point being, back then they just had more choice than the Average Tesco would offer. Where as now if you can't find a well regarded game 4 months after release unless you want to route through badly organised second hand sections, why would you go out of your way to go to a specialist that doesn't do what a specialist is supposed to do.
As for second hand, they have inflated those prices to the point that it is, at least some of the time, more expensive to buy second hand from Game than a new copy at Amazon, it's only the pack of catalog titles sold new that makes it look as if they are selling second hand cheap. I've always prefered knowing I was the first owner of anything, I'm certainly not going to pay more for a second hand copy, I'm surprised this side does as well for game as it does.
The recent problems on the new website probably will send affected customers running, I plan to remove my card details until I'm sure they've got their act together and arn't going to randomly re charge me for something I paid for last month, or charge 2 cards for the same item.

Posted:2 years ago

#13

Darren Stewart
Videogame investor

52 17 0.3
@Tommy, I think it can be argued that the market in general is getting bored with these titles because the market is down 10% despite the best year for games in absolutely ages. It would appear that the hard core all bought them but the mass market weren't excited enough. Although Rob's comment in the article about the second hand market killing the long tail is a fair one - certainly for games with little replay value.

@Matt. Sorry, I didn't actually meant Guitar Hero 45 and Wii 2 - I meant the next gaming phenomenon that was going to grow the industry in the ways those things did. I don't see anything on the horizon in terms of new genres or new hardware that is going to excite people to part with their money in the way that those did.

http://www.bougafer.com - investing in video games

Posted:2 years ago

#14
I popped out at lunch to buy myself a game today. HMV only had a couple of PC games in stock with FM 2012 making up 90% of that and GAME was selling the PC versions of Deus Ex and Dead Island for 39.99.

Posted:2 years ago

#15

Anthony Gowland
Lead Designer

172 525 3.1
"they're not fairing as well as butchers and fishmongers"

Don't get me wrong, I don't think there's anything Game, HMV, or Waterstones could do to return to their heydays. When I say that I think specialist shops can still exist, I think it's at a smaller scale even than they are today.

When the titles are currently the same as supermarkets are stocking, they could differentiate themselves by increasing their back stock and knowledge.

In the same way you can go to a clothes store and have a personal shopper select a bunch of things that suit you, at a range of prices; I would like to be able to go in to Game with the name of a title I enjoyed, and be presented with a selection of options I have a good chance of enjoying that they have in stock.

Instead of going in and having pre-orders, a limited range of overly expensive chart titles, and a scruffy preowned selection aggressively pushed at me.

Posted:2 years ago

#16

Philip Veale
Technical Director

1 0 0.0
Another vote for the fact that retail threw anything other than AAA titles under the bus, and built their business around the AAA blockbuster titles and second hand sales.

Now that other retailers are taking some of the AAA pie, they are discovering that the specialist titles (which may have given them some reason for a specialist "knowledgeable" retailer to exist) have all gone away, or gone online.

Posted:2 years ago

#17

Morville O'Driscoll
Games Blogger & Journalist

1,508 1,282 0.9
@ Darren "I think it can be argued that the market in general is getting bored with these titles because the market is down 10% despite the best year for games in absolutely ages."

I don't think you can honestly make this statement without looking at the economic factors of the world-at-large. It's been an exceptional year for quality games (not just blockbusters like BF3, but indie titles too), but it's also been the year when youth unemployment has hit 1 million, and HMV almost filed for bankruptcy (the only reason they haven't is because they sold Waterstones). In times like this, every market is going to contract; that doesn't mean consumers are getting bored, it simply means that disposable income is less, gaming is a luxury, and one of the first things to go when people don't have money.

Which isn't to say you don't have a point, but ignoring the impact of a lack-of-jobs and higher-than-expected inflation isn't something anyone should do.

Posted:2 years ago

#18

Graham Simpson
Tea boy

219 7 0.0
Anyone who thinks bricks and mortar retailers are dead go and look at GameStops results yesterday. As Morville has correctly said and to quote Bill Clinton 'it's the economy stupid'.

Posted:2 years ago

#19

James Ingrams
Writer

215 85 0.4
GAME has too much power in the retail space, but there are plenty of other stores, like Gamestation, CEX and other mailorder retailers that will send you a hard copy of the games versus the "data" of Steam.

To but from a supermarket though is self defeating.As long as you buy the "big" titles, like MW3, Skyrim, etc, you may be okay. But what happens with all those AA titles and great games from the smaller publishes? I don't remember supermarkets carrying the STALKER games or Metro 2033, etc.

If enough gamers like this writer buy from supermarkets, we will end up with very little ability to buy hard copy's of many many 5-20 chart position titles, rather than the 1-5 that the supermarkets carry!

It amazing to me how many gamers that seem quite smart can come up with these self-defeating purchasing decisions!

Posted:2 years ago

#20

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