The video game market is often called recession proof. It's escapist product at a good value, but I'm sensing a slowdown even in this safe haven.
Gaming, like the movies, provides good cost-effective entertainment. Many hours of it. Too many, some parents might say. Gamestop's performance in the last year certainly supports that, but there are a lot of things that can muck it up.
The company itself has a laundry list of them attached to earnings documents. Twenty six by my count as filed with the SEC as part of Gamestop's 10K, or annual financial report. The reasons range from fluctuations in tax or interest rates to changes among suppliers and the retail landscape. It's these last two that could have an effect on the market.
Just today, Take-Two Interactive said that it's delaying the release of BioShock 2, a popular game. This mostly hits Take-Two's earnings, but every little ripple in the business can effect retail sales. An even bigger issue, however, will be increased retail competition.
Gamestop has a robust used video game business. Restrictions in this category can negatively impact sales, says the company's financial reports. And now, Best Buy is gunning to make that statement true, getting into second-hand sales at its stores. That's 23% of sales and nearly half of Gamestop's profits.
Best Buy tried this before, taking trade-ins and selling product at select locations. This time around, the chain is installing kiosks to do the work. Insert the game, receive a quote and get a Best Buy gift card for the value. Some kiosks will rent movies and selling back the used games will be tested. Wal-Mart, Toys R Us and Amazon are also playing the used video game, er, game.
Even with Blockbuster closing some stores, this is pretty stiff competition for the retailer's cash cow. Future earnings depend on growing used game sales, the majority of which comes from customer trade-ins. The exact source Best Buy would like to have.
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