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The Collectibles Gamble

18 Jan, 2017 By: Erik Gruenwedel



In an age of streaming video, entertainment retailers are hoping T-shirts, action-figures, posters and related trend merchandise can offset declining packaged-media sales, including video games and music CDs.

With the popularity of Comic-Con and related theme confabs, collectibles of popular culture, including movies and TV shows, are booming, representing 42% of a $116 billion market in 2013, according to the Licensing Industry Merchandising Association.

GameStop, the world’s largest video game store-based chain, has aggressively pursued the trend, opening 10 theme-based stores worldwide, bringing the store count to 47, including four ThinkGeek locations, in the United States.

Within the category, merchandise includes backpacks, socks, knapsacks, necklaces, board shorts, puzzles, trading cards, card games, replicas, novelties, busts & statues and costumes, among others.

GameStop expects annual collectibles revenue from $450 million to $500 million, and tech brands (Apple, Samsung, Google, etc.) revenue from $800 million to $850 million.

Indeed, collectibles revenue increased 27.1% in the recent nine-week winter retail period to $176.9 million — due to an assortment of Pokémon products. Technology revenue increased 44% to $192.4 million, driven by strong sales of the iPhone 6s, iPhone 7 and Galaxy S7.

“We expect this category to approach 40% of our earnings in fiscal 2016 [ending Jan. 31],” said CEO Paul Raines. “These new businesses … prove that our diversification strategy is succeeding.”

That could be wishful thinking, according to Michael Pachter, senior media analyst with Wedbush Securities in Los Angeles.

Pachter believes GameStop will continue to see challenges until it can reverse the decline in its core video game business.

“Game sales dropped more than 10% last year. Collectibles will partially offset further declines, but can never fully offset them. The real problem is that the same people buy both, so if game traffic declines, it will be hard to grow collectibles,” he wrote in an email. 

Regardless, GameStop isn’t alone seeking merchandise alternatives to legacy product. Trans World Entertainment’s f.y.e. (For Your Entertainment) chain reported trend and tech brands together represented 42% of business (compared with 35% for video), versus 31% a year ago. Trend revenue alone increased 27%.

Trans World has opened select new mall-based stores, in addition to remodeling existing locations to focus on collectibles.

“While we are still in the early stages of our reinvention, our progress validates we are successfully leveraging our heritage, industry relationships and hard-earned credibility with our customers to achieve our vision,” CEO Mike Feurer said in a statement last summer.

Independent investor Vince Martin, writing Jan. 18 in SeekingAlpha.com, applauds Trans World Entertainment’s move to diversify in a rapidly changing marketplace — but questions embracing collectibles.

“That's a dangerous effort … particularly as GameStop tries a similar strategy (in many of the same malls as f.y.e.) to adjust to declining physical video game sales,” Martin wrote.

The investor contends Trans World may avoid the “all-too-common mistake of trying to turn around a business that can't be turned around” by focusing on Etailz.com, an online e-commerce platform it acquired for $75 million.

“The argument that a shift to [collectibles] sales, new-format stores and an emphasis on vinyl [music] sales, instead of CDs, can somehow create a stable business seems wildly optimistic," he said.

Collectibles or Bust

In 2014, Joel Weinshanker, CEO of the National Entertainment Collectibles Association, spent millions acquiring Hastings Entertainment and separately, Atlanta-based MovieStop, in an effort to capture market share in the growing niche.

Weinshanker, whose business interests include operating Graceland, Elvis Presley’s home in Memphis, Tenn., believed there remained a strong market for packaged media when combined with collectibles.

“We believe in and support the future of physical media and in the innovation and growth of our great vendor partners,” Weinshanker said at the time.

The dream lasted less than two years, as Hastings Entertainment, with 129 stores, and MovieStop, with 40 locations, both shuttered operations. Hastings filed for Chapter 11 bankruptcy protection, citing more than $100 million in debt.

Weinshanker moved on, last year taking over operations of Prince’s Paisley Park recording studio outside Minneapolis, which has been turned into a museum following the singer/guitarist’s death.

“Prince’s museum is going to outlive us all,” Weinshanker told the StarTribune.

 


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