Is GAME really in trouble?

Latest financials suggest a company in crisis, but GAME's fight is far from over

One glance at the headlines and you'll perceive that GAME is a retailer on the brink. Over the summer, we've reported on profits falling 81 per cent, credit insurance being pulled and its share price plunging to an all-time low.

Of course, GAME tells a different story. The retailer talks about how it only has one loss-making shop. It will tell you it is outperforming the market and that its events, digital, accessories and technology segments are all in growth. The firm likes to discuss how recent refinancing and the sale and lease-back of its HQ and distribution centre have significantly boosted its coffers. And it will insist that its recent struggles are entirely down to falling PS3 and 360 software sales, and it has now weathered that storm.

The truth, as with most things, lies somewhere in the middle.

To better understand the challenges facing GAME right now, it's worthwhile taking a glance at what happened at HMV.

HMV was another UK retailer facing significant threats to its physical media business. To offset these challenges, the HMV senior management team - led at the time by Simon Fox - began a process of diversification. The vision was to transform HMV from being a place where people buy music, movies and games, to a destination where people can watch bands, view movies and play games - as well as buy them. It acquired live music specialists MAMA Group and a number of high profile music venues, it snapped up GamerBase (a business with a series of locations where gamers met up to compete against one another)... it even opened a cinema.

These new ventures all showed signs of positive growth and profitability, yet they were not developing fast enough to offset the severe headwinds that faced physical CDs and DVDs (games, at the time, remained relatively buoyant). In an effort to survive, HMV sold its flourishing new businesses and, after entering and exiting administration in 2013, is now a far smaller entity.

"GAME's growth areas are not growing fast enough to offset the decline in its physical retail business."

GAME faces a similar situation. Like HMV, GAME does have a plan. Under the stewardship of Martyn Gibbs, the retailer wants to transform its stores from a purely retail destination to a piece of valuable marketing real estate. The vision is that GAME is a place where fans go to play and discover new games, meet like-minded friends and, if they fancy it, pick up a digital code or an extra controller while they're at it.

It's why GAME spent 20m on events company Multiplay last year, which is in the process of developing and rolling out 10 GAME Arenas in some of its larger stores. It's also why it is experimenting with the controversial business model of charging gamers to play things like PlayStation VR.

GAME likes to point to the success it is already seeing in this area. Event and digital revenue is up 45.2%, while accessories has increased 19% and its tablets and smartphone trade-in business shot up 60% during its last financial year. The firm has also moved into offering digital server hosting (via Multiplay) and it is handling the global hosting for EA's Titanfall 2.

Yet, like with HMV, GAME's growth areas are not growing fast enough to counter-act the declines it is seeing in its core physical retail market - and that's not about to get any easier. Latest figures from GfK suggest that the UK physical software market has fallen 8.2% year-to-date in terms of revenue (although, of course, the vast majority of annual revenue comes from that crucial November/December period).

GAME does have money in the bank, but it only takes one bad Christmas to find itself in a perilous position. It needs to

"If GAME can get through Christmas, 2017 offers more opportunity with Nintendo Switch, Red Dead Redemption and Project Scorpio."

escalate its new business ventures, whilst doing all it can to capitalises on the launches of Call of Duty: Infinite Warfare, Watch Dogs 2 and PS4 Pro - which is not exactly the strongest Q4 line-up.

Of course if it can manage it, then the company can look forward to a more optimistic 2017, one that already boasts a new Nintendo console, a new Xbox machine and the eagerly awaited return of Red Dead Redemption.

It's condescending to conclude that Q4 is crucial for GAME; of course it is, Christmas is always vital for practically every retailer.

Yet even more so than usual, GAME will know it must manage expectations and deliver on its targets this holiday season if it hopes to execute on its masterplan.

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Latest comments (5)

Jeff Kleist Writer, Marketing, Licensing A year ago
When they're charging 20 per hour to try out PSVR, They're in trouble
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, one that already boasts a new Nintendo console, a new Xbox machine and the eagerly awaited return of Red Dead Redemption.
Huh? consoles have poor profit margins for retailers, the only money to be made there is to try to push add ons and warranties. So sorry new hardware doesnt help, the biggest profit makers for retailers has been and always will be used games. So there is no reason 2016 shouldnt be profitable. And I agree, the charging for trying a demo reeks of desperation. Brick and Mortars are fighting a losing battle. They'll always be the need for some brick and mortars, but no where near what we have today, and Malls, I think are just relics left over from the 20th century.
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I think all of us old enough to have been through retailer anguish in the game scene could smell the familiar taint of serious difficulty, long before the illustration of internal problems with the stupid charging for demo games.

A shame that was unable to get answers to the serious questions from Sony on how they could allow GAME to break their commercial usage disclaimer on consumer hardware and software and just flaunt charging for PSVR - washing their hands of all responcibility (begs the question whos pocket the money will end up in?).

We must deduce that Sony sales are so tied into a failed state like GAME that they can do anything at this point, as long as they stay afloat. Wonder if this is the last of the bricks-and-mortar retailers chains (has MCV got its fingers crossed)?
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Show all comments (5)
@Todd Weidner: The idea that console launches doesn't generate good profits for retail is a bit of a myth. It's certainly true of some hardware, and the price erosion of Xbox One and PS4 makes it especially true, but not always. In the case of GAME, the retailer makes huge margins on add-on accessories and - most significantly - trade-ins. GAME might expect to profit significantly from gamers upgrading from PS4 to PS4 Pro, and Xbox One and Project Scorpio. Plus the trade marketing money that inevitably comes its ways
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Andreia Quinta Photographer, Studio52 LondonA year ago
@Christopher Dring: I think you basically just told Todd he was right in the end. I've done a lot of retail back in the day, in Game, Fnac, CeX. These guys make something like 5%, maybe 10% profit on consoles, period. Like you and Todd said, it is definitely down to accessories and trade-ins, and Game is reeeally pushy on the accessory and insurance side of things.

Here's the thing. Game overheads have no clue about how to captivate gamers, they just don't. They're not gamers themselves, they're analysts, accountants, spread-sheeters, they're numbers and profit margins people, which is fair enough. But you're not going to save a company (again) from administration if you don't understand what you are selling and who you are selling it to.

There's no reason to visit a Game or a Fnac or an HMV these days, not at least regarding games. Most of the best deals (apart from exceptions on christmas) are all online, we've got Amazon these days for boxed goods, and Steam (or Amazon) for digital. With fantastic refund and exchange policies. We all know this, I realize I'm being captain obvious here. Game needs to make the consumer want to visit them, make them feel excited about visiting a branch.

- Hold competition events for your customers, use big branches.

- Exclusive rewards.

- Membership perks that increase the longer you're a member

- Retro-gaming (retro gaming is so cheap for them to invest, have display cabinets or rooms with crazy modded (or classic) SNES, N64's, NES, Gameboy, etc. And let people play them, charge for hour sessions or so. Have rare vintage game editions or soundtracks for display or even for sale. It's sad to see a Zelda Windwaker sountrack selling for hundreds on amazon or ebay when it could be displayed or sold in shop. Game could grab hold of some of these even crazier items (like really rare stuff) and display them in branches. People would want to go to this or that branch to see this statue of 1996 lara croft, of a crazy mod on a playable NES, or a PC rig modded to look like Borderlands CL4P Trap, be inventive, be exclusive)

- Shut down non profiting (or barely making it) branches, like, before 2016 ends. Yes, there will be unemployement and tears, but it's a company, not charity, do what you have to do or face administration again.

- Spread game culture. Don't just look like a purple tesco shop, breathe gaming, have props, statues, trendy clean diagonal facing shelves (it's been proven they move more product).

- Hire cleaners for pete's sake, stop making your assistants clean the shop for you.

- Stop trading in phones and tablets, you're a game shop, act like one, it reeks of desperation.

- Improve your returns policy. People will be more confident in spending money on you if they trust that it's easy to return or exchange for whatever reason. (ie: Amazon)

- Reduce amount of branches, you have way too many. Close them, open larger branches to accommodate tournaments, or just more staff (from the small branches), goods and rare displays, game culture items. Have 2 to 5 branches per city instead of the current 37 of which 32 look like pigsties and are possibly unprofitable, or barely. Two very large branches in one city will most definitely be cheaper in rent, utility bill and paychecks than 20 individual small, leaking, breaking down all the time branches. Transfer staff accordingly and dismiss non seasonal part-timers in exchange for full timers. (Responsible adults want full time jobs, students and teenagers want part times, which of these would you like working for you?)

- STOP, for the love of your own mothers, looking like desperate people by telling your managers and staff to ask those ridiculous 6 questions on every single customer interaction. 1) Would you like insurance 2) Have you visited our website 3) Do you want an extra controller, accessory, etc 4) Have you got a loyalty card yet 5) Have you got any games to trade-in with you, if not, you can bring them over to us to trade-in 6) I forgot what the 6th was, but I'm sure it was just as annoying.

- Hire overheads that actually KNOW and LIVE for game culture. Know what you're selling and to whom!

- Improve the working conditions of your retail employees, they like a fixed air-conditioning unit just as much as people in headquarters.

- Pay them accordingly, stop offering minimum wage or just 0.20p above the threshold and still be surprised by large numbers of staff turn-over. No self respecting adult with rent and kids to pay will stay with a company that treats them (retail-side) like rubbish and pays the minimum allowed by law. It's like saying "we would pay you less, but it's against the law." It's no wonder all your shop staff apart from management is composed by teenage students or part timers. No adult would tolerate the abuse or lack of interest in staff legitimate concerns.

Take bloody notes Martyn Gibbs, this one was free.

Oh who am I kidding, see you in administration (again) next year Gibbs.

[Edited for clarity and worker conditions]

Edited 3 times. Last edit by Andreia Quinta on 26th October 2016 5:41pm

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