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Game Retailers Make Money On The Margins
This week's Escapist deals entirely with the business of selling games, and the article A Marginal Business details how EB and Gamestop make their money. From the article: "'Used games are keeping the entire ship afloat,' a vice-president of marketing for Electronics Boutique tells me. 'EB and GameStop make basically no money from new product.' No money from new product? But everybody knows the retailers are the real profiteers of the interactive entertainment industry, brutally extracting marketing development funds and ruthlessly returning product in the name of the all-mighty dollar. Right?"
it's the publishers that demand such high prices. Same with cds and dvds.
I thought it was the gaggle of producers that got all the credit for money-grubbing. As in, EA. I can't recall hearing anything specific about the retail chains.
I've been screwed over by retailers since before this happened. So I'll get my games direct from the publisher, or ebay? Retail is just another redundant link in the food chain. Maybe if they'd have more respect for the customer in the first place, and employed staff who know what they're talking about and don't have an `if it's not on the shelf we don't have it in stock` or `I'm only working here because I need a job - any job - for the money` we'd have some sort of reciprocal relationship.
Better luck with your next job, guys.
But everybody knows the retailers are the real profiteers of the interactive entertainment industry, brutally extracting marketing development funds and ruthlessly returning product in the name of the all-mighty dollar. Right?"
Given that many of the EB and such stores are in high rent districts, I can imagine that once the new product is sold, all of the margin from their cost to sell price goes to overhead, be it taxes, rent, payroll, utilities and so on. With used games, for reasonably new games, they seem to buy from the individual at less than 25% of the original price and turn around to label it at 75% original list or more, making the actual profit on the used game possibly higher than the new, with less invested.
In terms of costs, it doesn't help that most of these game stores seem to be very poorly managed.
I was at a Gamestop the other day and saw someone come in to sell some games. Not 10 minutes later, 2 of those used games got resold to other customers at a pretty good margin.
Initial sale: call it 49.99 (of which...? is profit?)
Buy it back used, currently popular title: -$25
Sell it used: $45
Buy it back re-used: $-15
Sell it re-used: $35
Buy it back re-re-used: -$5
Sell it re-re-used: $20
Off of that life-cycle for one game, they can easily make $55 bucks off of one game that had a maximum retail price of $50 bucks.
Because used game sales are so attractive, they offer incentives for people to buy and sell used games - I have one of those membership cards, and I get %10 off of the price of used games as well as a %10 bonus to the trade in value when I sell games, and also they'll let me bring a used game back for a full refund if I do so within a week of purchase, no questions asked.
Even better, they have huge leeway with what they can charge for the games - I tend to get pretty good deals when I haggle a little.
Win win for the retailer and consumer, in my opinion.
Since I can't tell them apart, I treat all ACs as the same person.
Having been burned with online pre-ordered games, my son and I buy our games at either EBGames or Future Shop (in Canada). If it's not in one store, I go to the other(s). The guys that pre-ordered their games online get their copy a week later and pay shipping to boot. I also purchase older games as well, i.e. just picked up a new copy of Civ3 for $10 last week at EBGames. Expecting the clerks to have expert knowledge of 'Latest Game III' is unreasonable IMHO, as they probably get paid squat, and probably don't get much time at work for training/education. I do my research in advance at sites such as Gamespot or Wargamers, etc.
Really - pretty pages to look at, but someone needs to tell their webmonkies that the web is not print. It took me forever to find the 'next page' button, and I don't like reading web content in three column layout. Even the IHT learned this lesson, and there are many other print-to-web publications out there that show how you can do this without compromising aesthetics.
-EvilMagnus
Yes and no. The trick is that no, retailers don't make money on the games themselves. They make money selling the SPACE on the shelves. No money, no space. It's part of how Doom made it big - rather than buy space at stores like Best Buy, they bought space on the counter at Circle K, 7-11, etc. This is, btw, how grocery stores make their money.
Anyhow... of the 50$ of the game, the store usually gets 10. The Developer gets 5. Who gets the rest? Congrats, you get a biscuit. Yup, it's the publisher/distributor. Yes, they assume risk on a game. However, the publisher tends to be a LOT better off, on the whole. Sure, Eidos is having problems, but EA certainly isn't. And considering how often a game company releases a game then is closed (okay, I gave up hunting down links - you get the idea), I feel little sympathy.
"Sometimes a woman is a kind of religion, she can save your soul & set you free from all your sins" - Bad Examples
I havent bought many games at the retail level. I just buy em online. Steam allows you to just pay and get the game downloaded automatically, while others might send a DVD too.
Put it this way, people shop around online to buy hardware. More and more are doing the same for software now. If you had to buy the latest Radeon, would you just hop into the next door computer store or look around online for the best deal?
The thing with brand-name computer parts is that you can be sure they're all the same. The Geforce 4 Ti 4400 made by Asus is the same in my next-door store as on the online discount mail-order store. The difference is really just the price, including the price of waiting for it.
Most other items require personal approval. You have to try out cars and clothes and furniture. For computer parts including games, you just know you need it (you can try out games as demos).
"Give orange me give eat orange me eat orange give me eat orange give me you." -Nim Chimpsky
Do retailers ever refuse to buy back or sell used stuff based on EULAs? Just curious if anyone has an example.
economic rant
Almost every retail entity works on razor thin margins, really! Were talking 1 or 2 percent. When I was in retail, we were happy if we made 1 cent on a 20oz Pepsi. It's not some bizarre phenomenon specific to new computer games, its just the way it is. To be successful, you have to sell a LOT of sodas! (ne: Wal-Mart).
As for the 'insane margins' on used games... Clue time, the same thing happens in other used areans. The used music stores here in New York, for example, may give you a dollar or two for a CD, and sell it for $5 and up. It's how used works.
No need to get all crazy about GameStop and their ilk. They'd be poor businessmen if they weren't doing exactly what they are doing.
/economic rant
I have been working at online retailers since college. I've worked at retailers in high school and during college. They always work on the margins, and sometimes, their profits from sales amount to negative.
Where do they get the money to keep afloat? From other sources. Some companies get paid by their distributors or manufacturers to advertise. That's right, Retailer Y gets paid money by Manufacturer X to advertise Retailer Y's store. Since advertising is money that has to be spent anyway, this translates to free cash. Others get cash from investors who believe if they can hold on one more year they'll hit it big. Others have some other service or plan that they are selling besides the product.
Retail is about living life on the edge, with barely enough ground to stand on. When times are good, they are really, really good. (And Christmas is a really good time for everyone!) When times are bad, numbers turn red, and managers start sweating more and choosing which salespeople to let go. For most of the year, no one really knows whether they'll get bonuses or get fired.
It's a tough game. It's tough because if you are a clerk or a salesperson, unfortunately, your higher salary works against you. One store I worked at told me upfront. "If you're good, we'll give you a raise." And then the manager said, "If you make too much money, we'll let you go!"
But this is the same everywhere. Publishers are trying to find out how to whip out more product from their factories for cheaper. Distributors are trying to justify their take on the supply chain, wining and dining both suppliers and buyers. And retail shops are trying to manage the head-ache that dealing with people instead of lifeless products brings. Add to that the workers who want to bleed every dollar from their employers, consumers who are about as loyal as a goldfish, and then the government who wants to tell you how to run your business and take their cut of your money as well, whether or not you are profitable. It's a game where everyone is pitted against everyone else.
Remember, one reason the internet is great for retailers is because you can now run your mail-order business for much cheaper and have more content that interacts better with the catalog readers. We've come a long way since Sears has published their first catalog, and we have a lot of ground to cover yet, but all signs point towards the internet solving a lot of problems mail-order has.
But you know what? All of this uncertainty and stress and competition leads to a superior product and distribution chain. In America, you CAN buy almost any game you want in almost any condition you want for a pretty decent price in pretty much any locality. Not so in most of the rest of the world. In America, you CAN start a new publishing or producing company to compete with the big dogs. It's not easy, but if you are good, you'll succeed. It's what makes it all happen. It's all because we have these free markets where people compete for money and no one is coerced to do anything they don't want to do (except in special cases).
The radical sect of Islam would either see you dead or "reverted" to Islam.
And bought my games with their employees-get-cost discount. Typically on console games that was in the area of 10-12$ less than retail (which was the typical 49.99). So around 38-40 dollars is what CompUSA paid for each console game. PC games had a bit more mark up, usually around 15-17$, to bring them to 49 if they were a "top tier" release. I heard from people at other chains (Best Buy for example) that their cost was slightly lower, perhaps because, compared to CompUSA, they had more retail outlets and bigger sales.
As the prices went down, the margins dropped too. A lot of times CompUSAs 9.99 games then were costing them 8 bucks and change.
No sig for you!!
When the retail price of a game is $50 or more, it doesn't surprise me if people would rather wait for it to go 'bargain bin' or 'used' rather than buying new. No sense getting burned on a lousy game. Again. *ahem* Don't you see games becoming the next 'used car' market?
Hokey/hostile copy protection schemes such as Steam and Starforce aren't helping matters either. No sense ragging on Steam since it has been hashed out here before, and Starforce's hardware/software-hostility has a cult following of gamers who stay informed of titles NOT to buy.
>In an interview with Computer and Video Games, Mark Rein of Epic Games was blunt:
>"If you walk into EB in the U.S., they try and sell you a second hand version of a game
>before a new one. I think that's bad. It would be fine if they share that revenue with us.
>They can also be marketing partners with us, as well. We can have an official refurbished >games policy. That's the problem. Those resold games use server resources, tech support.
>The majority of guys calling up saying "I don't have my serial number," I'm sure a lot of
>those are resold. It costs us money. Those customers think they paid for it, and they're
>entitled to support. The reality is we didn't get paid. They didn't pay us."
Yeah but, when the original buyer resells, he is no longer using server resources, techsupport etc etc. It costs you money, but you got paid already.
Just about every game you get from EB is second hand anyway, in terms of it's usage. All their game discs come out of a big drawer behind the counter, and everyone takes advantage of their returns policy, at least once, which allows you to bring back a game within two weeks if it just didn't "float your boat". These returned discs go back in the drawer with the new ones and it's not unusual for someone who purchases a new game to get one which has already passed through several sets of hands before. They have even started doing it for their xbox games, which means breaking the little xbox seals before they get to the customer, and this seems just plain dodgy to me.
Offtopic but... Does anyone else find it awkward when "product" is used as the plural instead of "products"?
Religion for nerds. Stuff that really matters
Sure there's a battle between retailers and publishers, but something could still be worked out. Say a 12 month period during which only retailers get to sell a new game. After that the developer/publisher can sell directly from their website(s) and lower their prices. Instead of ebay being the only place to find out of print games, I'd like to give a few dollars directly to developers for $20 games that once were $50.
I've made my opinion known before. I think retail stores selling used games is wrong. I won't get into the reasons I feel that way here.
What I will say is that I think that the publishers are the problem. They're charging too much for their product, and even Mark Rein, quoted in the article as speaking out against used sales, thinks that publishers charge too much.
The solution is simple. Publishers need to lower the price charged to retailers by at least 33%, but ONLY do it for retailers who agree not to sell used games. Consumers might be happy assuming that the lower prices lead to lower game prices (they might not), retailers are happy because they end up making more money per unit due to a much larger profit margin, and publishers are happy because even though they've reduced prices they're selling more copies by eliminating the used game business. Everybody wins.
Publishers won't do this, however. Because they're greedy, and because they are too stuck in their ways to take a big risk like that even if it will earn them more money. Think about how the RIAA is clinging to a dying business model, biting and screaming trying to stop online distribution like iTunes from succeeding, and then try to tell me that EA would behave any differently.
That'd just put specialty stores entirely out of business. Stores like walmart would be willing to sell the games at the much lower cost, just to get people into the store to buy other products. The whole concept of loss leaders and all that..
I know that at several retailers (at least a few years ago) that it was rather common for employees to open and/or take home a game to copy it and then re-shrinkwrap it with the machine that the store had.
Actually, most Office supply stores have shrinkwrap machines available for use and if you know the guy there, he can often re-wrap it for you. Doesn't work great for some games that have the harder plastic wrap, but if you pull it off right, it's a charm!
Tibbon
tibbon.com
Extremely few products absolutely require online access to register.
The point of AC's comment about Valve going out of business is that Steam games are among these "extremely few products".
I remember back when WoW was about to be released in the UK with "limited" stocks to create a buzz. I tried to pre-order a copy in my local ASDA (Walmart owned I believe) only to be told they don't do pre-orders. I did catch the price they pay when looked up his list to confirm release date and it was around £15. It went on the shelf at either £29.99 or £34.99.... you do the math ;)