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Used Game Market Expands Sphere

16 Apr, 2009 By: Erik Gruenwedel

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Best Buy Co. is reportedly considering selling used video games in the United States, citing consumer demand and the economy.

The No. 1 consumer electronics retailer experimented with used games in U.S. stores briefly in 2005. This year Best Buy began testing used games in Canada at select Future Shop locations in Calgary with plans to rollout used product to all 133 locations later this summer.

Michelle Grawe, director of merchandising at Future Shop, told Kataku.com that the sale of used games would draw younger consumers to the chain while doubling the chain's video game sales over the next three to five years. She said the chain was prepared to undercut GameStop’s prices to lure customers away from the venerable used game retailer, which has been Canada's only major retailer offering used games.

The used games business generates more than $1 billion in annual sales in the United States, with GameStop staked as the biggest player with 80% market share, according to Edward Woo, research analyst with Wedbush Morgan Securities in Los Angeles, Calif. He said gross margins for retailers on used games are about 50%, compared to 20% for new product. Used titles typically sell from $5 to $10 less than new releases.

“On an overall basis, new video game sales are more profitable [on a total dollar basis] since it’s a much larger market,” Woo said.

Indeed, The NPD Group said overall game and hardware sales in February increased 10% in to $1.47 billion. Software sales increased 9% to $733 million, with hardware sales up 11% to more than $532 million.

Late last year, Best Buy began rolling out kiosks (“Best Buy Express”) at select airports that stock new games and related hardware accessories, including headphones and SD cards, earmarked for captive game-playing travelers.

Toys ‘R’ Us also is getting into the used game segment. The chain is testing used games, including trade-ins for store credit, in select locations in the state of New York.

“We are currently testing the trade-in and sale of used video games in several stores in the New York area,” confirmed spokesperson Bob Friedland. “Beyond that, we do not provide information about tests taking place in our stores.”

Finally, Amazon last month began accepting used game trade-ins. Gamers select from a list of titles Amazon is accepting, print out a pre-paid shipping label and return it with the game for credit.

Colin Sebastian, analyst with Lazard Capital Markets in San Francisco, in a research note, said Amazon represented a significant threat to GameStop with initial trade-in traffic and used pricing for popular titles Left 4 Dead and Fallout 3 already surpassing GameStop.

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