Read the full interview at inpractise.com
We recently interviewed the former CEO at GameStop on how the company can navigate the industry shift from physical to digital distribution.
In the full interview we cover:
- Outlook on the shift in physical to digital games
- How GameStop use private label and collectibles to drive margin growth
- How the used market functions and challenges driving volume
- Challenges of GameStop and brick and mortar versus Amazon
- Importance of the customer loyalty programme at GameStop
What was the merchandising strategy in the stores then to increase either same store sales or margin per store?
The easy pieces were, you wanted to be able to sell private label products which are a really nice margin. You want to be able to sell collectibles and you try to tag on digital. Then it comes to used which is always a battle. You put those four things together, that's where you get your margin. I'd say in general with accessories and collectibles, it was very successful. Used has just been a slaughter.
What so difficult about the used market?
That's a good question. There's a piece of the used market that the consumer really appreciates because they can trade in their games and they can get trade credits and so on. At the same time, it's difficult for people to remember to bring in your old games. I'd even say for myself, my 13-year-old, he's probably got 100 old games in his playroom, and trying to remember to take those games into Game Stop is not easy. Hell, I trade in my own better than anybody. Yes, I think consumer awareness and getting people to know that it's a viable option is the key.
How does that work then, if I buy a brand-new game from Game Stop, let's say it's 60 bucks and then you will then buy that back off me the next iteration of the game for 30 bucks or for a fraction of the price and then I get that discount when I buy a new game instore?
Exactly. It comes in handy the most when I always say 70 percent of new videos games are released in the fall. The average gamer doesn't have the money to spend $60 ten times over between October and December. The advantage is, you buy the game and then you can trade it in for 30 bucks. 30 bucks is about right depending on the game, and then you get another game. It's not a complicated proposition.
Only suits the hardcore gamers, it seems.
I wouldn't say it only suits the hardcore gamers, I'd say the hardcore gamers are the most astute in terms of taking advantage of the program. Again, if you go into your kid's bedroom and there are like 25 Nintendo games, taking those, wrapping them up and bringing them to the store and going to Game Digital for example and just trading them in is a huge advantage to you. People just don't think about it.
Then in terms of increasing your margin then, you'd then resell those old games in the store at a markup which would be favorable to what you'd get on the new stuff?
Yes, I think this is public information. The average used sales are around 40 percent margin. New video games, it's more like 20. Yes, there's a big difference between the two.
Talk to me about how you approached really driving margin growth with the private label and the collectable and accessories, which is like you said, is where the margin is and where you typically increase that gross margin. What was so difficult about driving that growth from those products?
On the collectibles' side, I think there was just resistance within the chain. This is the same, so in 2001, we were trying to promote used. The store managers and obviously their employees at this point didn't like used. They thought it was dirty and not something they want to handle. Guys, this is a lot of margin. It's good for the customer. It took ten years to really get the used business going. I think with collectibles, it's a little bit of a similar situation, depending on the market, it started in Australia where we first tested it. It had a huge impact on the business. It's really a matter of getting everybody to understand that this is something we really need to do. On accessories, I think NPD has accessory sales at about 20 percent of total video game sales. If you look at the results, again, public, Game Stop has ten. Now, these are margins which are at least 150 percent better. I'm not sure I can tell you why the disparity, but certainly accessory sales, increasing accessory sales would make a big difference.