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GAME: “With so many games clustered together, there was going to be winners and losers"

The retail giant discusses one of the most competitive and challenging Q4 periods in years

Has there ever been a period of blockbuster game launches like the one we're going through now?

In less than seven weeks, massive franchises including FIFA, Assassin's Creed, Call of Duty, Red Dead Redemption, Forza, Fallout, Hitman and Pokémon have all been fighting for shelf space. And that 46-day cluster was book-ended by Tomb Raider and Battlefield.

There are at least four franchises in that list that - in any other year - might expect to sell more than one million units each. Not this year, though. Some games have flown off shelves (such as Spider-Man in early September and Red Dead Redemption 2), others have taken a significant downward slide compared to their predecessors (FIFA and Call of Duty among them). This is based on GfK figures, which only track physical boxed sales (so no downloads), but even so, it's been a mixed month for the High Street.

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Martyn Gibbs, CEO, GAME

"It's pretty much playing out as we had expected," says Martin Gibbsm CEO of GAME, after revealing the retailer's latest financial results. "You've got so many games clustered into such a short period of time that there is going to be winners and losers. The one thing that we are seeing that is a little bit different, is that we are seeing a slightly different profile around weeks 2, 3 and 4... in a positive way.

"That is quite interesting in terms of how this is playing out. I think it's based around the amount of game time that people have got. The week one number is never going to be as high because they're nowhere near prepared to give up time on one game before they start on another. We are seeing a little bit more longevity and a slightly different profile in percentage of total sales that come outside of week one."

GAME is actually quite bullish about the retail market in the short-term, and Gibbs seemed sanguine about the apparent acceleration of consumers downloading games over buying them physically. Whereas the likes of EA and Take-Two have talked of a surprising increase in downloads, Gibbs says it's tracking as the retailer had anticipated.

"Before a title is launched, we analyse the market based on both physical and digital and what we expect to sell through both," he explains. "I would say that we are pretty well on the money in terms of forecasting. It's slightly different by title. Some titles have been a little bit higher on digital than expected and some have been a little bit lower. But I think the general trend is what we were expecting."

There's a reason GAME isn't at panic stations over the rise in downloads, the slower sales of certain blockbusters, and a drop in pre-owned revenue, and that's because it's been living this reality for years. The retailer has been going through a very public transformation from the seller of physical products to providing experiences through its Belong concept.

"We've got the 21 Arenas, and I'm glad we didn't go a little bit faster than we have"

Belong ('arenas' within or besides GAME stores where customers pay to play titles together on high-end PC hardware) is proving effective. They are popular during peak times, are keeping customers in store for longer, attracting PC gamers (GAME typically attracts console players), and Belong is the reason Sports Direct invested so much into the company earlier this year.

Yet clearly the strategy has changed since we last spoke to Gibbs in March. There are now 21 Belong stores, just two more than six months ago. There were plans for 35 by the end of the financial year. So what's happened?

"We've got the 21 Arenas, and the one thing that I am very clear on with whoever I talk to, I am glad we didn't go a little bit faster than we have," Gibbs insists. "The reason for that is really positive. The reality has been we need far bigger arenas than we had originally thought.

"When we were looking at 24-feet arenas, that is clearly not where we need to be heading. If you look at the likes of Stratford, which has 36 desks that we can expand to 48, that is really where our heads are at. We are trying to absolutely make sure that we are going to the right size units in the right locations. I would like to have had a few more open, but that would have meant that the ones we had opened would have been too small. I don't want any that are too small, and we are trying to make sure that we've got the right approach - if you like - to be able to launch in those larger units. It gives a better retail experience, as well as Belong, actually."

There will be more Belong stores this year, but GAME is also trying to squeeze more stations into its existing estate

There will be more Belong stores this year, but GAME is also trying to squeeze more stations into its existing estate

Yet the building out of Belong takes time, and retail remains the most financially important part of the overall business. GAME has generally seen an increase in sales during its last financial year, but it was driven primarily through low-margin segments such as digital and hardware. Meanwhile, pre-owned - historically an important high margin part of the retailer's business - is on the decline and not expected to recover.

"We are not with our head in the sand thinking that we are going to see growth in pre-owned over the next three to five years," Gibbs says. "That's not going to happen, and that is inherently built into the numbers."

There have been upsides. The company has seen an increase in PC customers and sales of higher margin PC accessories (such as headsets). And the closure of rival retailer Grainger Games has boosted GAME outlets in regions where the two had gone head-to-head. Yet it still remains a challenging landscape, and so GAME has been, frankly, brutal in reducing its overheads. Ł11.4 million has been saved during the last financial year through head office restructures, changes in distribution, and rent renegotiation. And we haven't seen the last of it.

"Every cost line needs to be appropriately scrutinised on a monthly basis. There are good opportunities for us to become more efficient"

"We will continue to right-size the business with the right-size the cost base on the margin that is deliverable," Gibbs says plainly. "We want to be more focused on delivering more sales and margin, but we are just becoming a lot more efficient. When we look at all of our cost savings, it isn't a cost-saving number driven down... it's really a cost-saving number that we're achieving through a far more efficient business.

"There are always areas that we can look at. We have made savings from central costs, from distribution, in-stores and most notable with rents. But every cost line needs to be appropriately scrutinised on a monthly basis. There are good opportunities for us to become more efficient."

During the efforts to negotiate better leases, GAME has found itself with 25 stores on zero rent and 99 stores on flexible rent. It has negotiated a 42% saving on rents during the last financial year. The average lease length break is less than a year for GAME now, which Gibbs claims, "differentiates us from, I think, any other retailer out there."

It has also led to the closure of 29 GAME stores. It's expected that more closures will follow, although that's not the firm's objective.

"We have such flexible arrangements now, we are literally reviewing these stores every two months," Gibbs explains. "We have 99 stores that are on a three month rolling, so we can always make sure that we have the appropriate deal in the appropriate location to profitably trade. I don't want to put a number out there that we have to hit. We will trade until Christmas and that will tell us a lot again. But the flexibility means that we don't want to be closing stores. And we don't think that with the right negotiations and the right deals from our landlord, that we should be closing that many stores.

"We have opened some stores as well in the past six to eight weeks. We have opened at four locations, and these are locations where we have previously come out of. So it's not a case that we are out forever. If we can find the deals with the right landlords who can give us the right space in the right locations, we will go back into some towns as well."

He concludes: "The mint market in the UK is positive and up 16 per cent for the year-to-date. Again, that is driven by hardware, digital and accessories, but also the slate of new releases that we have seen. And the Spanish market [which GAME also operates in] is up 5.2%. I think both territories are primed for peak trading as well. We are in transformation at the moment.

"We are talking a lot about Belong, but we have a lot of really good backdraft for our retail business as well."

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