With our recent report on Walmart trying to once again get into the used games business, it seems as though other big box retailers are attempting to do the same thing. Colin Sebastian at Lazard Capital Markets has released information stating that Best Buy and Toys R Us are also once again testing new store concepts in a few locations.
Walmart’s confirmed re-entry and new initiatives from other retailers, though, might not be enough to chip away at GameStop’s domination of the used games market. “Given the lack of success of other pre-owned game initiatives, we don’t view these new initiatives as posing a clear threat to GameStop,” Sebastian stated. While it is agreed that the used game market is a more profitable, but more demanding category, Sebastian believes "that the barriers establishing a liquid and profitable used video game business are fairly high, including dedicated systems to track and manage used inventory and pricing, the ability to refurbish products and restock stores to balance supply, and compliance with numerous municipal codes. While the third-party companies likely have these core competencies, we note that they will not be as tightly integrated as what exists across GameStop’s network of thousands of stores.”
If anything, Sebastian thinks these initiatives could have a bigger impact on new games. "We believe that the new big box initiatives could have a bigger negative impact on sales of value-priced new software, which are traditionally sold to 'mass market' consumers through the discount big box stores," he said.
The report goes on to speculate that announcements from the various big box retailers could pose a risk to GameStop, but the impact of these announcements is not clear. There is consensus that more announcements could result in pressure on GameStop shares, but there is no expectation that GameStop would take any noticeable hit in the near to medium term.
