Retail limps to the finish line after a tough 2012

Defying predictions, retail chains survived 2012 - but it only gets tougher from here

You can't win 'em all. If I had one truly confident prediction to make, as 2011 entered its final stretch, it was that at least one major retail scalp would be claimed during 2012. US chain GameStop, while worthy of deep skepticism in the long term, looked secure enough - but the UK high street, filled with a proliferation of game and media retailers all fighting over scraps of the same diminishing market, was clearly a blood-bath in the making. The breathing space created by the collapse of giant entertainment retail chain Zavvi (formerly Virgin Megastores) in 2009 was coming to a close - there was no way every major player would survive 2012.

"Gibbs has expertly navigated the retailer away from the OpCapita kiss of death - and has even pushed the chain in new, important directions"

My prediction looked like it was on pretty solid ground by March, when GAME started to tumble over the cliff. Starting with Electronic Arts at the end of February, publishers and platform holders lined up to stop supplying the chain with stock, wary of impending administration and an inability to pay bills. By March 19, GAME's shares were suspended on the stock exchange; on the 26, the chain went into administration. 277 stores were shut immediately with the loss of over 2000 jobs. Sometimes, a prediction coming true really doesn't put you in any mood to crack open a celebratory drink.

That's probably just as well, because in the end, my prediction didn't come true. Today, you can still walk into GAME stores across the UK and buy games and hardware from any major company - including EA and all the rest of those who (understandably and perfectly reasonably) pulled the rug out from under the retailer back in March. This defies pretty much all expectations. After it went into administration, few expected GAME to find a buyer that would keep the business running - and many of us nodded grimly when the buyer that eventually stepped up was OpCapita, a company with something of a reputation for buying troubled businesses and hammering them into the ground, extracting what profits it can before dumping them back into administration. It did that to UK retail chain MFI back in 2008, and only last month, the same fate befell electrical goods retailer Comet. Few expected anything different for GAME.

If we're cracking open anything, then, it should be a toast to GAME's boss, Martyn Gibbs - who had left the chain back in 2011, only to be brought back as CEO after the OpCapita buyout. Thus far, Gibbs has expertly navigated the retailer away from the OpCapita kiss of death - and has even pushed the chain in new, important directions by embracing digital distribution to a degree, with GAME customers now able to buy Steam codes in-store for redemption online. It's a far cry from only a couple of years ago, when embattled retailers were putting pressure on publishers to drop Steam entirely from their titles and threatening a boycott of those that didn't - having apparently decided that the best way to deal with technological progress and market change is to sit down in the middle of the road and throw a good old-fashioned temper tantrum. Now GAME, at least, seems to understand that the future will happen with or without it, and is making efforts to carve out a spot for itself in that future.

"It's not hard to imagine a scenario where HMV slips into exactly the same kind of problems in early 2013 which GAME experienced in early 2012"

All the same, it's very tempting to repeat the same prediction, 12 months down the line. GAME isn't out of the woods yet - the company doesn't have credit insurance, for instance, a situation which can cause huge problems for a retailer (it's cited as one key factor in Comet's collapse, which must cause sleepless nights for management at the similarly OpCapita-owned GAME). Yet GAME is now actually in quite a healthy state compared to other retailers in this market. If you were to place a small wager on a high street brand to disappear in 2013, it would more likely be HMV - a chain which resoundingly failed to capitalise on GAME's difficulties (suggesting strongly that in the absence of GAME, customers went online rather than hunting out another high street option) and which has just posted a loss of 37.3 million for the first half of its year, which ended at the end of October.

HMV's situation is precarious, to say the least. It's posted losses fairly consistently for some years, its sales are in steady decline and it admits that it's likely to breach its agreements with its banks in early 2013. In order to keep itself stocked up for Christmas, HMV has had to accept help from its suppliers - to the tune of some 40 million, according to a report in the Telegraph this week. It's not hard to imagine a scenario where HMV slips into exactly the same kind of problems in early 2013 which GAME experienced in early 2012 - in fact, it's tough to come up with scenarios where that doesn't happen. Not so long ago, the retailer saw videogames as being a way to sustain its business in the face of tough challenges in the music and movie sectors; now, it's videogames that are the toughest sector of all.

Meanwhile, the sales reports continue to clock in every month, each month revealing a fresh decline. The wider industry knows perfectly well that reports from the likes of NPD are no longer of any particular relevance to the performance of the game sector as a whole - we're long past the point where digital revenues could be treated as a rounding error on physical product revenues. However, those reports are the slowing beeps of the cardigraph attached to the retail sector, which - despite the best efforts of more forward looking chains like GameStop and the newly reinvigorated GAME - threatens to flatline any year now.

2012 was a landmark year in that regard - not because of GAME's administration or HMV's deepening woes, but because of the huge shift in attitudes to digital publishing. The old idea of launching a physical, boxed game and then putting it onto digital services later on for a second burst of revenue is dead in the water - if you deal with a publisher who suggests this, back away very slowly and don't break eye contact, because they're incompetent to a degree that verges on outright insanity. Day-and-date releases for digital versions are now absolutely essential. Yet other titles go even further, and 2012 was a year in which many of the best-regarded games actually launched first as digital titles - with games like Journey and The Walking Dead being conceived and created as digital launches, with disc versions following on as an afterthought (other games, like the vastly successful Xbox Live edition of Minecraft, have no physical version at all). The commercial success and high regard in which these games are held demonstrates clearly that retail's worst nightmare is coming true - consumers are embracing digital, and the physical artefact is becoming less important to them.

"Retail's worst nightmare is coming true - consumers are embracing digital, and the physical artefact is becoming less important to them"

This is not to say that there's no future possible for physical games retail. We'll always need devices to play games on - despite the incessant wibbling of self-styled futurists and tedious ideologues, I don't for a single second buy the idea that multi-purpose slates are going to replace dedicated gaming hardware at the more committed end of the market. Moreover, there'll always be demand for special edition versions of games that come in unique, well-designed packaging that's designed as a physical statement about the games you love rather than just a box to hold them in. Merchandising, too, has immense potential that remains woefully untapped in the West - it's worth looking to Japan, one of the only places where games retail is still thriving, and noting that game retailers there are often merchandise stores first and software stores second. I may have bought my copy of Minecraft digitally, but I'd certainly walk into a store with a really cool Creeper plush toy in the window (I'm not very good at this whole "being an adult" lark).

For the sake of all the jobs involved - especially at such a tough time to be unemployed - I'm very glad that GAME, HMV and the rest of the retail market survived 2012 more intact than I expected. The prognosis, however, hasn't changed. Game retail needs to find and exploit a niche - to understand where it fits in the future, because right now, it doesn't fit well at all. 2013 is going to be an even tougher year than 2012 does. I'm making the same prediction again - we're going to lose a major high street games (or media) retail brand in 2013. While writing this piece, I realised that I couldn't actually remember when the last time I bought a game in a shop in the UK was; in a few years' time, I suspect, glumly, that we'll all be saying the same.

Latest comments (20)

Martyn Brown Managing Director, Insight For Hire5 years ago
SInce the death of the specialist indies, buying a physical copy in a shop has been a somewhat unenjoyable experience. Sure, there are always a few enthusiastic staffers wanting to help and advise, but mostly its having suggestions forced down your throat, presumably from a profit hungry management. Buying games became impersonal and part of a machine - it's no wonder people embrace digital - were faster broadband available to all and at a sensible cost, it'd be embraced even more, which is certainly where we are heading.
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Bruce Everiss Marketing Consultant 5 years ago
Our industry will be 100% digital far faster than most people realise.
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Sam Brown Programmer, Cool Games Ltd.5 years ago
I don't know about anyone else, but I find HMV stores massively unwelcoming places. I do pop into one ever few months to see if they've got any DVDs cheaper than Amazon (usually not), and quite apart from the - mostly middle-aged - crowds, the decor is horrible. Dark grey occasionally highlighted by neon pink is not a welcoming combination.

Waterstones is dark too, but in their stores it comes across as cosy. And they're still mostly selling books when we all expected Amazon to swat them aside. Hmmm.
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Rob Fahey Columnist, GamesIndustry.biz5 years ago
Even though the book trade isn't booming like it used to, media chains could definitely learn a hell of a lot from the likes of Waterstones and Foyles. They're welcoming, friendly, full of knowledgable, pleasant staff, and often paired with a nice cafe or similar so that shopping there feels like a pleasant, relaxed experience, which encourages you to browse and discover. They also focus very heavily on special editions and selling beautiful things rather than just stacking up the latest best-sellers and cheap paperback editions, which does a world of good for their margins. A small, well-managed chain of game and entertainment stores like that would find a very receptive audience, I believe.
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John O'Kane Programmer 5 years ago
Forbidden Planet for games.
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Daniel Hughes Studying PhD Literary Modernism, Bangor University5 years ago
If Game was a cross between Forbidden Planet (merchandise, knowledgeable staff) and Waterstones (ambiance, special editions, enthusiastic staff, a small cafe), I'd happily shop there for the experience. I buy many books online and am getting an e-book reader, but I still appreciate good quality, exclusive edition books that look good on my shelf and are a pleasure to own physical copies of. The same would be true of games, if more thought were put into the physical packaging of special editions.

To give you an example, earlier this year I recieved both The Last Story and Mass Effect 3's special editions at the same time. Mass Effect 3 came with some good digital content, but I was less satisfied with it because of the poor quality box, and poor quality physical pack-ins. The Last Story came in a solid, cardboard box covered in concept art, came with a CD (with a seperate, high quality case) and artbook within a beautiful cardboard, blue cardboard box, again adorned with high quality artwork. Finally, I recieved both the steel-case (again, lots of nice artwork inside and out, good build quality) and the normal edition case, so that I could display the collection how I wanted to. All of that for only 10 more than the normal edition, compared to an extra 30 for Mass Effect 3.

I'm not saying remove digital incentives from physical special editions. Far from it. But it's possible to do high quality special editions that give you great merchandise for a good price, and are a nice excuse to the shops to check out. Game need to justify their existence in the age of online, and becoming smaller, more focused towards hobbyist consumers, and creating a strong, worthwhile shopping experience, they really could continue to do well, as Waterstones have managed in the book trade.
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Sam Brown Programmer, Cool Games Ltd.5 years ago
@Rob: You said it a lot better than me. :) HMV comes across like a customer processing machine, Waterstones like a trip to a friend's house.
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Matt Martin Editor, GamesIndustry.biz5 years ago
There's no specialism in games retail on the high street. HMV sells cans of Coke and Mars Bars. Last time I went into GAME I bought one of the Game of Thrones books because it was cheap. They're a few steps away from being newsagents.
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Matthew Hill Head of Recruitment, Specialmove5 years ago
I absolutely agree with the sentiments above summarized by Martyn's words that in many retail chains "Buying games became impersonal and part of a machine". Nevertheless its ironic then that customers are opting to buy online from an impersonal service.

Is the real challenge for High Street retail pricing & convenience of direct downloads rather than customer service ?
Do online channels offer better customer service ? e.g. customer reviews; better targeted marketing etc ?
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Morville O'Driscoll Blogger & Critic 5 years ago
Well, surely it's "All of the above". Somewhere like Amazon has quality customer service (if something goes wrong), cheaper-than-High-Street prices (and in my experience cheaper than supermarkets, too), and product reviews (from a mixture of people). Steam, meanwhile, has amazing sales (hello Christmas Sale! :D ), a shocking amount of convenience (aside from waiting for the product to download), and friend recommendations. The console marketplaces aren't quite as easy-to-use as Steam, but they're still incredibly convenient.

When you've got all that, coupled with staying indoors in the warm, why wouldn't you buy online? High Street shopping is great for the experience if you've got spare cash to throw away on impulse purchases (I spent an hour just wandering around the local Waterstones yesterday), but if you just want to buy something and be done with it? Online all the way.

Edited 2 times. Last edit by Morville O'Driscoll on 14th December 2012 2:09pm

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Matthew Hill Head of Recruitment, Specialmove5 years ago
I think you're broadly correct. My suggestion that online retailers are impersonal was slightly mischievous - in certain respects they excel at customer service. The key to any successful online business is their knowledge of customer behaviour.
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Kieren Bloomfield Software Engineer, EA Sports5 years ago
@Bruce, how fast are you talking? I don't know how good your internet speeds are in your 'silicon spa' now but when I left about the best I could expect on a good day was around 4MBit/s. Now I'm in Vancouver and have internet through cable at around 15MBit/s and just last week it still took over half an hour to download the 1.2GB expansion for Rocksmith (think of a game weighing in at around 4GB taking around 2 hours to get down). I can still get to the shop and back quicker than that, and I get some exercise in as a bonus too.

Sure the move to digital will happen but we're not there yet, even in places with good network infrastructure. You also forget about a large portion of the market that doesn't have access to high speed connections. People predicted the death of the CD well over a decade ago and it's still around, not as strong but still there all the same.
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Christian Vuye Contributing Editor, XGN Entertainment5 years ago
Here in Belgium we have a specialist games retailer called Game Mania (google it!). I think that Game Mania is a good example of how games retail should be run.
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Brandon Hofer Editor in Chief, Totally Gaming Network5 years ago
We won't be 100% digital for quite some time if only for the fact that the infrastructure is not there. There are areas that still lack access to basic broadband and are still utilizing dial-up.
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Bryan Robertson Gameplay Programmer, Ubisoft Toronto5 years ago
Not to mention the fact that even where high-speed broadband is available, it can be hard to find an ISP that doesn't have ridiculously low bandwidth caps. At least in Canada. I imagine there are probably areas in the US that have the same issue, due to lack of competition.

I miss my 50MB uncapped Virgin Media connection.
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100% digital implies 0% retail. And that won't happen for a very, very long time - especially when the physical hardware, controllers (etc) are still to be purchased at shops.

How many retail copies did Halo/COD sell this year? Are they really going to walk away from that? No chance.

Going to be at LEAST 10, maybe 20 years if it ever happens. For "0" that is...
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Sean Ferrol Podcast Host & Creator, Next Level Cast5 years ago
Working at GAME this makes me sad. It's inevitable that I'll eventually be made redundant in both senses of the word.
I enjoy my job and I enjoy giving 1 on 1 time with customers who either want a recommendation or haven't got a clue about the field and really need help when it comes to buying gifts or what have you. It's just a shame that all it takes is for a shopping centre to put it's lease prices up and I'll be out of a job regardless of how well I perform my role.

Honestly don't think it'll be long before physical video game retailers come in the form of a vending machine system.
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Greg Wilcox Creator, Destroy All Fanboys! 5 years ago
There's a combination of too much magical thinking from the 100% digital crowd with too much wishing people in retail would lose their jobs within the next few months to a year or so just so we can all shut up and queue up online waiting for more shitty service contracts with no-fault anti-litigation fine print (when your info gets stolen at some point) just to say "Lookit" I got gamez fazt!"

Look, there needs to be a saner way to keep BOTH retail an digital going somewhere for as long as possible because like it or not, for the foreseeable future there's never going to be that type of AFFORDABLE super worldwide quad-double lightning fast internet some of you seem to have (or want to have). You'd figure that this tech should be everywhere and cheaper than it is, but welcome to the free market and developed countries with terrible infrastructure that's not getting upgraded as fast as it needs to be.

I say retail as well as digital should be options through publishers spending the time and money to have an online shop up and running. Solely focusing on digital is screwy because what the hell do you do when no one can get to your delicious content thanks to something nasty happening from weather to man-made trouble that while temporary, end up not making people happy because they're staring at an error screen or nothing at all when they could be playing what they paid (or want to pay) for?

In short, once one form of distribution is gone for good, you're setting up things to speed downhill even faster the day something goes completely nuts online.
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Aaron Brown BA Computer Science Student, Carnegie Mellon University5 years ago
This is an awesome opportunity for marketing to find ways to make more profit off of the sale of the physical copy of a game.
IMO Packaged games should ship in boxes with awesome box art, and with exclusive items like action figures and other collectibles. I'd totally buy the hard copy of a game like gears of war judgement if it shipped with a super detailed figurine and a poster, and I would even pay more for it.
But without the added incentive, there is a zero percent chance I will leave my house to purchase the hard copy of any game.
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Peter Dwyer Games Designer/Developer 5 years ago
Odd observation but, in that Photo is it just me or does the poor guy look like he's just bought a turkey and know it!
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