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Retail

Walmart jumps into the game trade-in business

Walmart jumps into the game trade-in business

Tue 18 Mar 2014 4:01am GMT / 12:01am EDT / 9:01pm PDT
Retail

Retailer launching large-scale program at 3,100 US stores, aims to disrupt second-hand market

While a few competitors have tried to make inroads over the years, when it comes to the better-than-$2 billion per year used game business, GameStop has had a pretty secure lock on king of the hill status. Starting March 26, though, the world's largest retailer will be looking to steal a significant piece of the pie.

Walmart has announced plans to launch a large-scale video game trade-in program at 3,100 stores across America. Working in conjunction with CE Exchange, the store will allow consumer to swap games for store credit, which can be used to purchase anything that Walmart sells. Used games could be available to in-store shoppers as early as this summer.

"Ultimately, we want to pay more for games than anybody else and let [customers] pay less."

Duncan Mac Naughton

And while the retailer avoided directly naming GameStop in discussing the program, it made it clear that it was gunning for the game chain.

"Ultimately, we want to pay more for games than anybody else and let [customers] pay less," said Duncan Mac Naughton, executive vice president, chief merchandising and marketing officer for Walmart.

Walmart plans to accept games for all existing console systems - from the Wii, Xbox 360 and PlayStation 3 to next generation titles. (It will not accept game hardware.) Mac Naughton says trade-in prices will, of course, vary depending on a title's popularity, but he expects the average price paid per game to be around $35.

"Our customers have been interested in used games for many years - and we've been working with partners to enter this business for many years. We just couldn't find a model that worked for our customers," added Laura Phillips, senior vice president of entertainment for Walmart.

With CE Exchange acting as a database repository for the value of games, Walmart associates will simply scan the game's UPC code (after first checking it for scratches and cracks) - with the trade-in value automatically being entered from there.

Walmart, of course, has danced around the used game business before, launching a pilot program in 2009, but never expanding that. With the shift in console generations, though, (as well as the new partner), the company decided it was time to commit.

"We think due to the size of this business and the role we can play in disrupting it, that the timing is good right now," says Mac Naughton.

Publishers have generally been resistant to expanding the number of stores trading and selling used games, since they don't receive a portion of those sales. Mac Naughton brushed off questions about feedback from game makers, saying they were 'excited' by the move, but declining to speak further for them. Instead, he chose to focus on the appeal and benefit of the program for consumers.

"In working with our suppliers, what we're excited about is growing the market," he said. "We know consumers are going to love the great content we will offer."

(GI.biz reached out to several publishers to get their thoughts on Walmart's move. None said they were "excited" about it - as Mac Naughton suggested - but, not surprisingly, none wanted to risk the wrath of their largest retail partner and declined to comment on the record.)

"We think being on the shoulders of disruptive tech is good. We're ready to grow into digital as that business emerges."

Duncan Mac Naughton

Walmart's move towards embracing used games comes at a curious time, given the industry's ongoing shift towards digital downloads. Walmart execs say they're not worried about that, though, since not all of the store's customer base is equipped to download large files. However, notes Mac Naughton, digital remains firmly on the company's radar.

"We think being on the shoulders of disruptive tech is good," he says. "We're ready to grow into digital as that business emerges."

So why the push? Simple... It's easy money, especially given the number of non-digitally inclined shoppers. GameStop's profits from the sale of used games are roughly 25 percent higher than what the company earns from new titles. Transition that sort of margin to sales on the Walmart level and investors get really, really happy - assuming Walmart can pull it off.

The fact is: Used games aren't an easy business. Toys R Us, Target, and several other major retailers have tried to get into them before, but abandoned their tests. Allocating inventory among stores can quickly become a logistics nightmare. And predicting which games will have a high resale value requires an in-depth forecasting model.

It's also labor intense. Store clerks need to know how to examine a disc to determine if it's damaged-and even among people who are trained in that, it's an inexact science. GameStop says it has to fix approximately 14 million used games each year before reselling them.

Walmart thinks it has things figured out though - and it's set to use its size and market share to become a major player in the space - and using that strength to drive sales of its new games as well.

"I think the market value we're offering is going to be what motivates the [game] owner," says Mac Naughton. "[But] new games will remain the focus of our business. ... We're really excited about capturing new release market share."

15 Comments

Asif A. Khan, CPA
Financial Reporter

31 86 2.8
Memo to GameStop...

Posted:4 months ago

#1
Hmm, because it's always a good idea to jump into a downward market after everyone else has already had their share. No, wait....
Digital sales will make this irrelevant in a couple of years. It will make a profit if the startup costs weren't too high I suppose.

Posted:4 months ago

#2

Shane Sweeney
Academic

349 250 0.7
Bit late aren't they?

Posted:4 months ago

#3

Matthew Eakins
Technical Lead

47 7 0.1
What is that knocking I hear? Sounds like the final nail in the coffin of brick and mortar game sales.

Posted:4 months ago

#4

John Bye
Senior Game Designer

479 444 0.9
At least with Gamestop the person trading the game in is most likely to use that credit to buy more games (even if some of them are second hand). If you can get more for trading in your games at Walmart and then use that credit to pay for your groceries, that's bad news for boxed games if this takes off.

Posted:4 months ago

#5

Caleb Hale
Journalist

150 221 1.5
GameStop is going to need some liquor licenses and some "Duck Dynasty" T-shirts to combat this new assault from Wal-Mart. In all seriousness, though, I don't think this will radically change the market on used games. I tend to agree with some of the sentiments above that dealing in second-hand games requires some nuance that Wal-Mart simply won't apply to their one-stop-shop model of retail.

Posted:4 months ago

#6

Christopher Bowen
Editor in Chief

402 526 1.3
This will have virtually no effect. GameStop is already the market leader for casual traders, more savvy traders are on eBay, and as mentioned, this is irrelevant because digital distribution is going to render the second hand market largely irrelevant anyway.

Posted:4 months ago

#7

Greg Wilcox
Creator, Destroy All Fanboys!

2,134 1,039 0.5
@Andrea: As someone who prefers physical over digital, uses BOTH and has had to delete games to make space because limited funds limit me to two computers and a single (albeit large) external storage solution that's almost full, I agree. Yeah, yeah, yeah, the "cloud" argument is going to be made, but this does me and a few million others no good at all thanks to crap connections, bandwidth caps (which will be the big thing to hit the US even more as net neutrality dying off means ISPs will get busy shifting UP rates for people and not down as some thought would happen over time.

All this pushing retail off a cliff is going to backfire at some point and already has in those cases where content gets dumped of streaming sites with no notice or such short notice that some can't save what they paid for elsewhere. That and game history will more or less be non existent at some stage in the future when everything is shoveled online without a care to backing it up elsewhere for pure preservation purposes.

This is all like the ending sequence of Citizen Kane when chunks the man's treasures are being pored over and burned because there's simply no room for them and "who cares because the old man is dead and gone" is in full effect. Physical product may go the way of the dinosaur one day... but if it goes too soon, I'm betting less people will have the opportunity to play NEW games because they simply can't get them as digital products. Or OWN them as long as they like, for that matter...

Posted:4 months ago

#8

Paul Jace
Merchandiser

870 1,278 1.5
The fact is: Used games aren't an easy business. Toys R Us, Target, and several other major retailers have tried to get into them before, but abandoned their tests.
Toys R Us, Target and Best Buy all still sell used games but I believe Best Buy(and only certain ones) are the only chain around here that still takes used games as trade-in for store credit. Regardless, I'll be checking out Walmarts trade-in prices when this launches. If they're willing to give me more store credit than Gamestop then I see this as a positive, even if only a short lived one.

Posted:4 months ago

#9

Christopher Ingram
Editor-at-Large

44 35 0.8
It's also labor intense. Store clerks need to know how to examine a disc to determine if it's damaged-and even among people who are trained in that, it's an inexact science. GameStop says it has to fix approximately 14 million used games each year before reselling them.
Walmart barely keeps enough staff on-hand to alleviate long lines at checkout, typically keeping 60-70% of the checkout lanes closed, unless it's the peak holiday shopping season (and temporary staff is hired). In my semi-large metropolitan area, we have a number of extremely large Supercenters that do an absurd amount of daily business, yet these very same stores' limited staffing keeps their appearances progressively more run-down.

Is Walmart actually going to put the labor into place for this type of business? I remember Walmart selling repackaged used video games years back and it was a bunch of shovelware titles that sat in an overpriced bin for months on end. I have my doubts that this will be a long-lasting venture for Walmart.

Posted:4 months ago

#10
Once people's next-gen game libraries start reaching the mid-to-high single digits and these problems become impossible to ignore, i predict digital downloads will fall off a cliff.
This may be true in the short run but in the long term I think it will make physical copies a thing of the past. Why would someone want to keep making games in the future at great expense only to get paid once for every 5 or more people who "purchase" it.?
I agree physical copies still make sense for the customer and retailer perspective, but it makes no sense from the developers perspective. A developer spends 100 million making a game, sells a physical copy once for $60, dev see possibly $30 of that if they are lucky. Now that physical copy gets sold and resold say 5 times over its life. For 60, 50, 45,40,30. Thats $225 revenue from the one physical copy yet the dev still only sees 30 bucks?
Now lets look at digital distribution. Devs sells it for 50, they will likely see at least 40. So perhaps they have some digital sales to attract the crowd that use to buy used games, so those 5 customers now buy the game for 50, 50, 40, 40,30 at various times and sales via digital distribution. Revenue is $210 ( roughly the same as used physical) but now the dev sees around $150 of it.

$150 versus $30. As a dev. what model you think you want to use going forward? Physical copies are dead plastic walking.

Edited 2 times. Last edit by Todd Weidner on 19th March 2014 10:37pm

Posted:4 months ago

#11

Greg Wilcox
Creator, Destroy All Fanboys!

2,134 1,039 0.5
@Todd: tell that to the Big Box retailers that make a profit (slim or not) off DVD's, actual book and game sales. Wal-Mart, Target and a bunch of other places in the sticks here in America where speedy online and such is a dream (or too pricey for some), that money they make from physical product is probably coming from a thankful population that MAY be ready for the digital age, but can't access it when they'd like to.

That and hell, trading games for lousy credit to buy more games is old hat. Trading games for sort of reasonable credit to buy dinner for eight? That's kind of cool in a weird way. Don't forget you need underwear and socks, too. Mario and Luigi just got new gigs as Wal-mart stock boys... :D

And nope, I don't live anywhere NEAR a Wal-mart and probably wouldn't use their trade-in service. Just having fun with the kooky idea they came up with...

Edited 1 times. Last edit by Greg Wilcox on 20th March 2014 2:17am

Posted:4 months ago

#12

Nick Wofford
Hobbyist

152 158 1.0
@Andrea
I understand being cautious about an all-digital future, but at the very least, I agree with his point about retailers and their cut of the profit. Quite frankly, GS and the like are only slightly beneficial. They all sell used games in lieu of new ones, and their employees are swiftly trained to do this as soon as they are hired. That's like continuing to hire a maid that's stealing from you because you don't want to clean your own house.

Forget the console manufacturers in this; they'll get paid the same platform royalty in either case. But there would still be the retailer's cut that would then get allocated to other people: either the platform holder (more money for Sony/MS/Nintendo), more money for the developer (more games get produced, and profits are easier to achieve), or directly to you (lower price for new games).

The PS4 (and X1 eventually) will have replaceable hard drives. And eventually, we'll sort out these idiot ISPs because the Internet is the wheel of our time. It's not here yet, but when these things do happen, I want the online stores fired up and ready to go. I don't want net neutrality to return, and then spend another 5-7 years working out digital releases.

Edited 1 times. Last edit by Nick Wofford on 20th March 2014 12:47am

Posted:4 months ago

#13
It doesn't matter how much you want digital distribution to rule supreme if the logistics of space, bandwidth, and shoddy internet connections make that dream untenable
untenable? its all ready here for mobile gaming and PC gaming, so all that is left is the niche of a few consoles.

For those that that dont think digital game distribution is the future, I simply ask, How is your Blockbuster Video stock doing?

Its not a matter of "if", just of "when".

Edited 3 times. Last edit by Todd Weidner on 20th March 2014 1:24am

Posted:4 months ago

#14
I'm not derailing anything, Im discussing the fact that Walmart is way late to the party (used console games sales have been going on for over 20 years) and that this practice is on its last leg. This will likely be the the last gen. for used game sales on consoles since as stated the rest of the industry has already moved on from physical distribution. You want to get into how brick and mortars are also finding themselves in decline here in the US?

How is what I said any more derailing then
This whole digital will kill retail conversation has a fatalistic Aesop fables vibe to it, meaning that if those who would kill retail get their way the victory will not come without a painful moral lesson attached. I would respectfully remind anyone cheer-leading the death of retail (including used games sales) of the following four axioms:

1) You don't know what you got til it's gone.
2) The grass is always greener.
3) Look before you leap.
4) Don't count your chickens before they're hatched.
as for that. Yeah we actually do know whats we got, and Steam, google play, and online game stores are better. The grass actually is greener. We PC and mobile gamers have already leaped and the landing is soft. And the chicken count is just fine

Edited 7 times. Last edit by Todd Weidner on 20th March 2014 2:10am

Posted:4 months ago

#15

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