thedeparted
06-16-2010, 07:23 PM
Electronics retail giant Best Buy Co. (BBY) said Tuesday it will start selling used videogames in all its stores beginning later this summer and will allow consumers to exchange their old games for Best Buy gift cards.
The news weighed on shares of GameStop Corp. (GME), the largest videogame and entertainment software retailer by sales, which is highly exposed to the used videogame market.
In recent trading, GameStop shares dropped 8.3% to $20.06, down 15% over the past 12 months. A company representative wasn't immediately available to comment. Best Buy, meanwhile, slid 6.4% to $38.44 as it posted fiscal first-quarter results that missed estimates.
The market for used videogames showed strength during the economic downturn as consumers looked for cheaper alternatives to paying full price, likely an attractive point to Best Buy whose sales in videogaming and home theater declined in the first quarter.
GameStop has already faced pressure from concerns about encroaching competition--including lower videogame and console prices at Wal-Mart Stores Inc. (WMT).
But despite Wal-Mart's increased presence in the gaming arena, GameStop still dominates the used-games market--something that makes Best Buy's announcement worrisome to investors.
The used-game market is traditionally hard to break into because a retailer needs significant demand to get supply, and they can't attract supply without demand, Janney Montgomery Scott analyst Tony Wible said. These fundamentals have given GameStop a competitive advantage.
"I think that's a difficult barrier to overcome," Wible said, adding that GameStop's loyalty program should help it retain its customers.
And Wedbush Securities analyst Michael Pachter said he believes Best Buy will fail in its effort to offer used games as "the average guy who trades in games is young and needs the money. Those guys don't shop at Best Buy because they don't have the money."
Even if Best Buy makes headway in the used-game market, Wible said he believes there would be room for two players, and he thinks GameStop will still appeal more to serious gamers, helping the company to retain its top position in this market.
But Pachter cautioned that GameStop could lose about 10% of its market share in used games over the next two to three years if Best Buy is successful. Last month, GameStop said used sales have posted a compound annual growth rate of 22% over the last four years, though it said that rate isn't sustainable.
Best Buy's move isn't its first foray into the used-game market. The company currently offers a similar program online at BestBuy.com that allows customers to get estimates for their games, mail them in free and receive a Best Buy gift card seven to 14 days later.
Best Buy also began testing the sale of used videogames in some of its Canadian stores a couple years ago and said last year it was going to offer kiosks in Texas that would buy and sell games. It also started its online electronics trade-in program in 2007 and said late last year that customers could go to its store to trade in electronics purchased at Best Buy, no longer having to mail in the products and wait for gift cards.
competition is good for consumers, gamestop have a basic monopoly on brick and mortal used game sales isn't good for us
The news weighed on shares of GameStop Corp. (GME), the largest videogame and entertainment software retailer by sales, which is highly exposed to the used videogame market.
In recent trading, GameStop shares dropped 8.3% to $20.06, down 15% over the past 12 months. A company representative wasn't immediately available to comment. Best Buy, meanwhile, slid 6.4% to $38.44 as it posted fiscal first-quarter results that missed estimates.
The market for used videogames showed strength during the economic downturn as consumers looked for cheaper alternatives to paying full price, likely an attractive point to Best Buy whose sales in videogaming and home theater declined in the first quarter.
GameStop has already faced pressure from concerns about encroaching competition--including lower videogame and console prices at Wal-Mart Stores Inc. (WMT).
But despite Wal-Mart's increased presence in the gaming arena, GameStop still dominates the used-games market--something that makes Best Buy's announcement worrisome to investors.
The used-game market is traditionally hard to break into because a retailer needs significant demand to get supply, and they can't attract supply without demand, Janney Montgomery Scott analyst Tony Wible said. These fundamentals have given GameStop a competitive advantage.
"I think that's a difficult barrier to overcome," Wible said, adding that GameStop's loyalty program should help it retain its customers.
And Wedbush Securities analyst Michael Pachter said he believes Best Buy will fail in its effort to offer used games as "the average guy who trades in games is young and needs the money. Those guys don't shop at Best Buy because they don't have the money."
Even if Best Buy makes headway in the used-game market, Wible said he believes there would be room for two players, and he thinks GameStop will still appeal more to serious gamers, helping the company to retain its top position in this market.
But Pachter cautioned that GameStop could lose about 10% of its market share in used games over the next two to three years if Best Buy is successful. Last month, GameStop said used sales have posted a compound annual growth rate of 22% over the last four years, though it said that rate isn't sustainable.
Best Buy's move isn't its first foray into the used-game market. The company currently offers a similar program online at BestBuy.com that allows customers to get estimates for their games, mail them in free and receive a Best Buy gift card seven to 14 days later.
Best Buy also began testing the sale of used videogames in some of its Canadian stores a couple years ago and said last year it was going to offer kiosks in Texas that would buy and sell games. It also started its online electronics trade-in program in 2007 and said late last year that customers could go to its store to trade in electronics purchased at Best Buy, no longer having to mail in the products and wait for gift cards.
competition is good for consumers, gamestop have a basic monopoly on brick and mortal used game sales isn't good for us