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Web Retailer Bails on Games Industry, Hard
Online retailer DVD Empire has gotten out of the sale of videogames, and on their way out the door they made a point to call out the industry on a number of sore spots. As reported by Gamespot, the company felt that they actually lost money by offering games to customers. In their eyes big publishers only care about large chain stores, leaving small and medium-sized retailers to pick up enormous overhead costs on the titles they carried. They have an extensive list of frustrations on the former 'games' page, including: "When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale--that is a .01% gross margin (note the decimal point). The game companies make their profit selling to us. We make no profit selling to you." Besides Gamestop there are two other videogame stores in my town ... but both of them are exclusively used game resellers. Are used games the only way to make videogame sales profitable?
Surely. .01% would be 4cents.
The only way EB Games, and Gamestop stays in business is from their used game sales. Depending on the game, they will buy it off of you for 10-20 bucks, and resell it for 90% of the normal retail price, making a huge margin. Now EB and GS probably make a bit extra than an independent store, but not much.
I notice that the link to the screed in their games section has a userid component. I also notice that the link to the 20% off all games link has the same userid in it.
Does this site reward referrer links?
If it's for-profit but free, you're not the customer -- you're the product (e.g., the Slashdot Beta's "audience").
It's Verizon Math!
I guess it should be: 5/400 = 0.0125 = 1.25%
Take a look at the market and you'll see it's generally not the best one to be a retailer in, unless you carry lots and lots of other items. Games drop in sale price from 50 bucks to 20 bucks in a matter of months. If you (the retailer) pay 35 or 40 bucks wholesale a copy at launch and don't manage to sell your stock before the price drops, then you're screwed. That means you either need to deal in huge volumes, or, as mentioned above, you need to carry many other types of items to draw customers. It's no surprise that it doesn't work out well for web retailers, since the nature of web shopping is to price hunt and buy only one item at the lowest price around.
So they want consignment for video games?
Hmmm... 2007... it's been 24 years since the last video game crash. Crap that gets dumped into the shit bin now versus crap that gets shipped back, gets crushed, and finally buried under concrete in the middle of the desert.
I've been wondering about this for some time. Video games, unlike many other items, are always sold at MSRP. If I got to large retailer 1, 2, 3 or small specialty store X, Y, Z the price is always the same. There is no competition going on. *Maybe* I'll see a special sale on a game, but it's rarely for newer releases. Last 'special' I ever got was when I picked up some DDR games and got a free dance pad and a "buy 2 get one free" deal at Toys'R Us looking for some Xmas gifts, which is a very rare promotion to find (outside of used games that is).
It only makes me wonder, why do I never see one place have a sale (besides there 'bargain bins') on some games to compete with others. I guess the above answers my question. It appears game companies/publishers are forcing a fixed price to the point that there's very little profit to be had.
Is this necessary to recoup the multi-million dollar investment to make a game these days? It is a weird industry.
Cheers,
Fozzy
"The past was erased, the erasure was forgotten, the lie became truth." ~1984 George Orwell
I buy most of my video games at Wal-mart. We have a Gamespot and GameXchange though I've only used the GameXchange once. Why buy from Gamespot when the same exact game can be had cheaper and with a better return policy at Walmart? Gamespot will check if you've opened video game and won't take it back. Walmart will as long as its a video game and not a computer game. I support the business with cheaper products and a better return policy.
From what I understand, large retailers make a lot of money on things like cables. Look at the price of cables online and look at what Best Buy charges for Monster cables. Certain retailers make more money on the USB cable sold with an inexpensive printer than on the printer itself.
Wow, not so good with percentages. I wonder if they made the same kind of error with this other figure they cited?
There's games (not used) over MSRP at Gamestop. Some of the $29.99 DS games are there at $34.95
... now we will be offering you complimentary sour grapes! Free of charge! Tasty with any cheese.
Tycho and Gabe already covered this. http://www.penny-arcade.com/comic/2006/12/18
Nothing for 6-digit uids?
The retail stores may be looking at it as a loss leader. Get the customer in the store and sell him accessories and other stuff that has a better profit margin. I knew that margins on consoles were very small, but I thought that they were better on the games.
Mea navis aericumbens anguillis abundat
I agree with you generally but Walmart is a special case. Their refusal to stock adult-only rated games is often cited as a major problem in game development, and leads to the rather ridiculous situation that game developers wanting to make a game the addresses adult themes (or is just about violently blowing shit up) have to target 17 year old "children" rather than real adults if they want to get stocked in Walmart, where a large number of sales happen. It's mostly a problem with the broken USA ratings system (17 versus 18 is a huge legal difference but makes no odds as far as maturity is concerned), but Walmart makes it worse with their refusal to accept that adults can enjoy video games designed for them.
Basically the folks that work at Gamestop and EB are told that the store makes most of its money off used game sales, and that's how it stays open. This is why you see the store employees telling visitors the most blatant BS on the planet in order to make a sale on a used game. It also explains why online retailers of predominately new games can't make a profit -- they have no used games and even if they did they'd be hard-pressed to BS potential customers into purchasing any.
I don't mean to bash EB and Gamestop, because it's not like they are committing a crime by selling an overpriced, used piece of garbage to an ignorant parent (any customer should be responsible enough to either know exactly what he/she is buying, or to not care). But they do have an advantage over online retailers in that they can outright lie about a game to an uninformed person in order to sell something they want to sell (used as opposed to new) -- and they do, frequently. I've had friends work at these stores so I know more-or-less how things go there.
So, is that the game industry's fault? Kinda... they charge the stores so much per new unit that there's no room for the store to profit while selling at MSRP. The industry often makes dang-good profit, too, so it would be nice if some sure-fire hits were sold at a reduced price to retailers in order to help out their business. Would that in turn keep more retailers open for business and generate enough additional sales to only drive business further? Hard to say, and probably not, but it would keep stores from having to follow the EB/Gamestop model. As things are, that's basically how a store has to operate.
I like basketball!!1!
If they're not allowed to sell above MSRP, then it's more than a suggestion, it's an upper limit.
I wonder if the guy that has problems with percentages had anything to do with their failed game business.
there was a way to transmit digital data between places that didn't cost any real money.
It could be a connection of all the big networks, an Internet if you will.
Over this internet we could send our electronic wares like music, video, photos and games for for a reasonable amount of money. Of course, to make this possible home networks would need to be connected this internet too, and at speeds of 1-2 Mbps at least!
Oh shit, its 2007 and this has actually happend. The games industry is lazy and greedy, just like the RIAA, and the MPAA. There is nothing sopping all game distributers doing the same as Valve and selling their wares online. With any luck, the additional competition will mean that the Valves draconian DRM will be relaxed along with other electronic retailers.
Companies (sorry I'm british) like Game, HMV, Virgin should consider themselve lucky that that the BPA et al are as slow as they are, other wise they would have been in trouble 3 years ago when broadband really took off.
It makes no sense to buy digital media in shops on physical drives when there is a reliable internet. Manufacturing, distribution, handling, sudden drops in recommended retail price and bad / poorly marketed games are going to drive up the cost to consumer, and reduce the margins for the retailers and producers.
Its not even as if games can't be a closed system. Wii Virtual Console, Valve Steam and Live Arcade both demonstrate that a download model can work - how long until premium titles are distributed this way?
Scared of flying, pointy things snce 1979!
These guys waited till point 6 out of 10 to explain the REAL problem:
6. Games Are Better Suited for Brick and Mortar Retailers:
There is not a huge selection of games; it is a new release industry (majority of sales are in the first two weeks of release). Large retailers make money on other products after they get you in the door. We do not; most people come to a website to purchase a video game, not a video game and a bunch of movies. There is also no game catalog market, if you wanted to buy an old copy you would buy it used. So retailers are able to stock all new games, and they can return the ones that don't sell. Games bring in great foot traffic for physical retailers and they make money elsewhere. EB Games/Gamestop relies heavily on their used business. It is very difficult for online retailers to have an advantage, except for convenience.
If this is the case, then why did they bother to get into the game business? Why not stick with something they do well at- selling DVD's online? It sounds like they're bitter at making a terrible decision and pointing the finger at everyone but themselves.
This is just another boutique retailer who got burned by the big guys who manage to get games into gamers hands cheaply. Heck, one Walmart store probably sells more games than these guys. It shouldn't be a huge surpise that they can't do well when they buy through a distributor. It doesn't mean there's some huge structural problem in the industry.
Oh, and by the way, 8.5% retail margins are not horrible. These guys should talk to independent grocers if they think they've got it bad.
first off, define what that means? Does it require a force feed back controller?
Sorry, but the gaming industry blaming wal-mart for their inability to offer "adult themed" games is like a crazy uncle claiming that he suffered a heart attack because you stubbed your toe"
Adult themed means : We don't really have a game but lots of titties and ass shots will make up for it, if that don't top it off we will even offer simulated sex.
Sorry, Wal-Mart is only 12-15% of the retail industry at most, the games are being made because no one is going to risk the money. Does gamestop offer them? Perhaps a behind the counter section?
I can just imagine some basement living geek going to wal-mart to buy Blackmale Little Lisa Linux, they don't have the guts to seek out real girls, how could they handle a crowded store and buy something like that?
* Winners compare their achievements to their goals, losers compare theirs to that of others.
For PS2/Wii games, I go to my local game shop because that is the only way to get them. For PC games, I get it from whatever online retailer has the lowest price/shipping combo or Direct2Drive if its an option. My heart bleeds for you, video game stores, but the high schooler behind the counter trying to upsell me into a strategy guide provides no value to me, and since I only go to the store when I have a specific game in mind I don't need his advice (and if I did need advice, I could get better informed advice online -- sorry, kid).
The money from a video game sale has to get split three ways: developer, publisher, point-of-sale. Everybody thinks the other two get too much money. Publishers need developers, they can't make games without them. Developers sometimes need publishers, because AAA games cost $$$ to make and you don't want to have to self-insure against not getting a hit. Who needs retailers? Um, nobody, if there is an alternative distribution model which can move the same number of units. For products targetting the core demographic (which is perfectly capable of downloading games already... TOO capable, to hear many tell the tale), distribution via download works now and will only get better as bandwidth increases. In the next couple of years, we'll hear of a name game being distributed as an Internet exclusive. After one publisher proves that they can make mad, mad bank doing that (not on the scale of GalCiv2, on the scale of WoW), and keep it all, you'll see a stampede of PC games out of the current retail channel.
Help poke pirates in the eyepatch, arr.
Makes me wonder what kind of sweet deals and profit margins they're getting on regular old movies?
Has anyone noticed that game prices haven't really risen much latelty? At least, they are definitely BELOW inflation. In fact, here in Canada, I'm pretty sure many computer games, backin 1997, used to go for $70-$80 (I'm remembering Daggerfall in this case). Now, the prices are down to about $60, 10 years later!
I can understand prices going down if the cost of game development has gone down as well, but I really don't think this is the case.
Could it be that game publishes are still trying to expand the market? They could be worried that if they increase the price of games to a reasonable level, relative to the 1997 cost/inflation, the game industry would greatly shrink. BUT, they still want to make their profits. Consequently, they bully the stores into making up the difference.
I've never even heard of DVD Empire. GoGamer.com takes care of most of my gaming needs....
There is a war going on for your mind.
However, if DVD Empire was disallowed from having a higher price, I would be rather surprised. After all, the R in MSRP stands for recommended. I know that GameStop/EBGames routinely have prices a few dollars over the MSRP. Part of DVD Empire's problem, though, was that if they did go over MSRP people would turn to brick-and-mortar stores, since you can get it there, not pay shipping, and have a place to return the product easily should something go wrong.
Used sales aren't the only way for outlet stores to turn a profit; however, a lot of places rely on those sales to keep up profit margins. There's something wrong with this, and companies need to re-think how they go about such a thing. (The only other option I can think of is for outlets to rent out games- the selection at movie rental places is usually slim. Rent out the used games for X amount of times, and then set them for sale used- make more profit off of one copy. Laws dealing with rentals might block this, though.)
I think you underestimate the sheer volume of sales that go through Wal-Mart by a huge margin. There is a reason that they are able to force manufacturers to alter thier business practices to suit Wal-Mart's vision of how business should be done. Wal-Mart has bankrupted several large companies simply by taking thier product off the shelf (Rubber-maid) or in the case of Clausen pickles by offering thier product at a ridiculously low price as a loss leader for Wal-Mart. I see no reason to believe they have any less influence on the gaming industry than they do in any other industry they retail for.
I was the assistant manager of a mom and pop shop about 7 years ago. They eventually went out of business because this is exactly the way the industry works.
Used games and accessories are the way to keep a store profitable, period. Now, my experience was from the PS1 up through DC and PS2 era, but it's basically still the same.
Consoles are worth zero profit. Our store manager actually bought them from Target on an "air miles" card because it made more sense than ordering a $199.99 console for $197 plus shipping (sales tax can be refunded if forms are filed correctly). The games themselves weren't all that great, either. $50 games were sold to us for $41 to $43. I later verified these numbers when I got to look at employee discounts in big box stores - we were paying a bit more than the Best Buys of the world, but not much.
Best Buy uses the games to draw people in for the more profitable items, and we did the same. Used games usually had a 100% markup. New games that sold for $50 were purchased from gamers for $15 cash or $20 in credit toward another used game, and sold for $30 or $35 retail depending on the popularity. Just as in every other retail store, the key is attachment. Go walk into EB/GameStop, and look at all of the strategy guides, toys, trading cards, and accessories. We made more on a $20 memory card than on a $50 game; we pushed hard to sell the strategy guides because they tripled our profit on the transaction. One month, we made almost 1/3 of our profit on pokemon cards during the height of that trend. It was still a losing battle, though. New game systems became harder to get during the launch cycles, the emergence of three viable consoles instead of two made our inventory balancing much more difficult, and the store ultimately folded about a year after I left for good. I've since seen several other mom and pop game shops come and go in the various cities I've lived in, and I've arrived at the same conclusion as TFA - big boxes are the only ones who can afford to sell games.
The videogame industry just isn't the music industry; the culture that allows the small record stores to still exist in the trendy urban areas doesn't translate to videogames. The "indie" games are all available for sale online, and there's no concept of "local scenes." It's cool; I'm okay with that. I just hope people realize this before they throw their savings at the dream of combining their hobby and business.
How about game accessories?
You know, the hi-def cables, the controllers, the special cases, game guides, figurines, etc etc?
I don't know about online, but there's definately a decent markup on some of these at the local retailers. Mind you, in physical stores it's often about location and salesmen... you put the console behind all the other stuff the store wants to sell, and beside all the hi-def cables, then have the salesman sell them a PS3 for $2.00 profit, and the cables, carrying case, extra warranty, etc for an extra $20-40 bucks profit on top of that.
Online I suppose you could add a little reminder ad when somebody buys the console like:
- The Xbox360 you are purchasing comes standard with 1 controller and standard video cables. Would you like the hi-def cable kit and extra controller bundle for $xx. Also, click [here] to see our other XBox360 accessories.
Sorry, Wal-Mart is only 12-15% of the retail industry at most
Actually, they are about twice that. A little googling shows that about 23% - 28% of new games are purchased at Wal-Mart. If Wal-Mart won't stock your game, it is going to seriously affect sales.
Back in 2001 they accounted for 25% of video game sales.t ml
http://www.wired.com/news/games/0,2101,55955,00.h
I've also found several dead links referencing them as the number 1 games retailer with between 23-28% depending on the article date.
But can Animal Crossing be "beaten"?
Wait until games are sold on tough little Flash RAM cards.Nintendo DS anyone?
Would something like Steam be practical for a handheld video game system such as the Nintendo DS?
I just always get suspicious of such things.
If it's for-profit but free, you're not the customer -- you're the product (e.g., the Slashdot Beta's "audience").
What bothers me most are retailers (Gamestop/EB, I'm looking at you) that only sell new releases to preorders. You mean I have to pay before I even get the game to get a copy? Do I get interest on this loan I'm giving you? And then you can't even guarantee you'll have enough in stock to give me my copy from the first shipment! If I'm in your store willingly, chances are I'll buy something else I want on a whim. If I'm preordering, I already know what I want and I'm not going to browse.
Requiring preorders to *maybe* get what you want on the first day is just wrong. Luckily there are enough retailers around me that don't require (or accept) preorders that I can get my game from elsewhere. But I can't wait for digital distribution to put these scam artists out of business.
I sell "name brand" products in another industry via the internet, and have been offered the opportunity to sell games & movies.
The problem (in both industries) is that if I really start to move any volume at prices below what our distributer or the manufacturer deems acceptable, then all of a sudden my wholesale supply will dry up. Manufacturers will either pressure the wholesaler to cut me off or will cut off that wholesale distributor.
I can't tell you the number of off the record "you can discount our product, but don't sell it for less than ZXY co." conversations I've had. If someone does undercut "XYZ co." the wholesale distributor stands a good chance of having hundreds of thousands of dollars worth of merchandise handed back to them and a contract canceled. Consequently even though I could make an acceptable profit on some items while selling below retail pricing, the reality is that it's not a sustainable income stream.
What that means to my business is that I now usually target items that the big stores & online retailers aren't interested in. In the smaller niches (for now) real competition is still allowed to flourish.
Is it just me, or is the obvious solution to all of this for the medium-sized retailers and the high-quality developers to get in cahoots, and offer games that are actually good on a business model that works for the developers, the small-to-mid-range retailers, and the customer?
I worked sales during college at a jewelry store, and the nicer watch companies (Movado, Tag Huer, Rolex) do the same thing. The funny thing is all the paperwork you get with each order... "While each retailer has the right to sell stock at a price of their choosing, (company name here) reserves the right to demand copies of sales records before shipping additional stock, and to refuse sales for any, or no, reason."
Have you been touched by his noodly appendage?
They sell shelf space that publishers use to sell video games. Particularly end-caps.
Even for the big guys, the mark-up on games is insignificant. But the video game market is so crowded that being one of the tiny fraction of games that are actually on the shelf at Wally World is incredibly valuable -and therefore incredibly expensive.
I don't find this to be true at all. Sales for videogames seem to be very common, including for new releases. I routinely buy new releases of videogames at Fry's for $5-10 off the MSRP, and I know Best Buy at least generally has sales the week after release. Hell, if videogame sales were really that rare then sites like CheapAssGamer wouldn't be so amazingly popular and successful. But sign up for the forums there and you'll see info on videogame sales nearly every day of the week. I'll agree that sales for videogames may not be as common as we would like (and there definitely seems to be a seasonal factor - sales are a little sparse right now), but they do happen with some frequency.
Just an example to prove my point, right now at Best Buy you can get these 360 games:
Gears Of War >>>> $49.99
FEAR >>>> $49.99
Saints Row >>>> $49.99
NBA 2K7 >>>> $39.99
Fight Night: Round 3 >>>> $29.99
Major League Baseball 2K6 >>>> $19.99
All of those are on sale (actually it's possible Fight Night saw a price drop), and at least Gears (retail price: $60) is still doing great business - these aren't solely due to a game bombing. This past week I managed to get the fairly new 360 game Blitz for $20 at Fry's, an advertised sale. It was released a couple months ago for $50 and it looks like Circuit City also has it on sale for $22. CC also has a fairly significant sale on most versions of Madden 07 right now. The sales are out there if you look for them.
There is no excellent beauty that hath not some strangeness in the proportion. -- Francis Bacon
Often times Target will sell Game Boy and DS carts for 5-10 bucks off in the US. Haven't seen that kind of discount for any disk-based media though. About the best I've seen for disk based is extra trade-in value for a particular game at EB/Gamestop.
This sig isn't original enough, it's time to come up with something witty...
The post is not off topic. It clearly discusses margins in the summary and this post is relevant.
Interestingly enough we have three stores, all owned by Babbage's in the Freehold Raceway Mall. (Funcoland, GameStop and PlanetX) less than ten miles away from them we have two stores in two adjacent shopping centers (Gamestop and EBGames) less than ten miles away from them is another PlanetX, and less than ten miles from that PlanetX is the Ocean County Mall with an EBGames AND a Babbage's. They all seem to be managing just fine, which is odd because you can go into Blockbuster and get any game you want for about $30 with their Rent it/Keep it system.