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GameStop Reacts to Walmart's Used-Game Initiative

28 Mar, 2014 By: Erik Gruenwedel

When Walmart announced it would bow a video game exchange in an effort to grab a share of the $2 billion pre-owned gaming market, the immediate reaction of industry watchers centered on how market leader GameStop would feel the heat.

Not so much, according to Paul Raines, CEO of the nation’s largest video game retailer with 6,600 stores nationwide. In a March 27 fiscal call, Raines — without naming Walmart specifically — welcomed the new competition, which he characterized as validating the used-game business.

“For years, we have faced very strong big-box and online competitors in that space and expect that will continue going forward,” Raines said. “I would point out that it is a great sign for the category that large competitors return after previous attempts as they see that the pre-owned video game business has a lot of growth ahead.”

Walmart allows consumers to trade in used video games and apply the value toward the purchase of anything sold at Walmart and Sam's Club, both in stores and online. The traded-in games will then be refurbished and made available for purchase starting this summer.

Available at more than 3,100 Walmart stores nationwide, the trade-in service will accept physical games for consoles such as PlayStation 3 and Xbox 360. Trade-in values will vary depending on market demand of titles and their condition, including original packaging, among other criteria.

Walmart contends there are more than 880 million used video games in U.S. homes.

Wedbush Securities analyst Michael Pachter, who specializes in the video game business, said Walmart’s entry into the used games will have little impact on the market.

“The average Walmart customer is the mom who buys the games for their kids, not the gamer,” Pachter said in an email.

Indeed, news of Walmart’s entry into used games saw GameStop shares decline 5.5% after the March 18 annoucement. Shares have since rebounded.

GameStop’s Raines said the retailer is redoubling efforts in the used game business, including offering new products of catalog software and hardware (PS3 and Xbox 360) at steep discounts.

In 2013, more than $400 million of new catalog video games were sold at price points below $20, a category GameStop has traditionally ignored. Raines said that will change. GameStop will now add select new titles in partnership with game publishers to the pre-owned mix in stores to create a larger category. It will also target specific popular titles that are out of stock in some stores and place them on the pre-owned wall to increase sellthrough.

“This is an opportunity,” Raines said. “Historically we have not bought as aggressively from our publisher partners at these lower price points, but consumers have told us that they shop for value on our pre-owned sections, independent of where the games are sourced.”

GameStop remains a formidable competitor in used games, with 75% of all trades made at stores used to buy new products, a business model that last year generated more than $1 billion in revenue.

“Our publishers know that trades made at GameStop stay in the gaming ecosystem,” Raines said.

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