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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").
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
There's games (not used) over MSRP at Gamestop. Some of the $29.99 DS games are there at $34.95
I buy mine used at GameStop for two reasons
1) 90% or so of the retail cost, with an additional 10% discount (for a mag subscription that I enjoy)
2) If the game reeks I can take it back within 10 days and return it, exhange it, etc. 90 days if it just doesn't work
Walmart and Target don't give me that.
-WS
An operating system should be like a light switch... simple, effective, easy to use, and designed for everyone.
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.
Oh, wait...
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.