Last week, after big box retailer Walmart announced some new aggressive pricing on video games, investors seemingly overreacted and GameStop's shares plunged. Now that we're a week into the deals, Sterne Agee analyst Arvind Bhatia has taken a closer look at the effectiveness of the promotion, and he's clearly not impressed.
"Last week Wal-Mart announced a video game promotion discounting 25 video game titles by 15% to 20%. We visited a few area Wal-Mart stores, talked to a few others, and looked at pricing at other top retailers in the video game space to assess the impact of this promotion. ...Execution of the video game promotion at WMT stores so far appears unimpressive," he stated.
"Specifically, store associates do not seem to be well informed about the promotion (at least in our checks). In our phone conversations with Wal-Mart employees, we found that they were sometimes misinformed and quoted us pricing that was inconsistent with the promotion. During our store visits, we noticed that the end-cap display promoting video games was poorly stocked and gave the perception that games were sold out (when in reality they were available in the video game aisle). We found pricing inconsistencies, too. For instance, Tekken 6 (Xbox 360 and PS3) was listed at $50 at the end-cap promotional display and for $60 in the video game aisle. Similar pricing disparities occurred across a number of titles."
Bhatia added that Amazon.com's pricing "appears equally competitive relative to WMT’s promotion" and that Walmart's deals seem to have "had a minimal impact on GameStop’s new software sales so far." He added that GameStop's used business continues to track well, but the one area where GameStop could be hurt by Walmart is on the Wii. "... we believe GME could lose some share on Nintendo Wii hardware given WMT’s free $50 gift card promotion with the purchase of a Wii," he noted.
