Resilient retail – UK retailers discuss stock shortages, Switch and Brexit

This year has already brought a few shocks and surprises to retail. The first few months of 2017 had its usual new entries in best-selling franchises such as Resident Evil 7 and Mass Effect Andromeda, some big new IP releases including Horizon Zero Dawn, and, of course, there’s Crash Bandicoot N. Sane Trilogy, which has been consistently selling well throughout the summer. 

But the biggest event at retail this year has undoubtedly been Nintendo’s long-awaited launch of the Switch, with GameSeek’s CEO Stephen Staley saying that 2017 has been “excellent” so far, with “the Switch launch being the [main] highlight.” 

It’s the same story at online retailer ShopTo: “After a strong first quarter for new releases, the typical summer months are quieter,” head of commercial Alison Fraser tells MCV. “However, Switch new releases and consoles have been a welcomed revenue driver over the past couple of months.”

For Robert Lindsay, managing director at Games Centre, this year has been “better than expected” so far, with the High Street retailer’s strategy of product diversification “starting to bear fruit.” But, again, he singles out a “surprisingly strong performance from Switch despite relative shortages.”

Lindsay pinpoints here what has been the bane of retail during the first half of the year: hardware shortages. After encountering similar problems at the end of 2016 for products such as PS VR and the NES Mini, 2017 has seen retailers facing Switch shortages since its launch in March. That led retailer giant GAME to issue a profit warning to its investors in June, due to the Switch’s “level of supply to the UK market [being] lower than expected.” Nintendo even had to clarify that the Switch shortages were not strategic, insisting it was doing everything it could to ramp up production in time for the Christmas holiday season.

The situation forced retailers to adapt and change how they communicate with their customers in order to handle the crisis.

“Our customer service department are aware of the shortages and the delivery dates, so they keep our customers informed on a regular basis,” ShopTo’s Fraser explains. “Social media has been a useful tool to inform customers when the stock arrives.”

Switch has provided a most unexpected shot in the arm for retail this year.

Robert Lindsay, Games Centre

Overall, however, Fraser says the new console has had a positive impact on business. “Switch has been a good news story on a whole. Yes, stock has been short and we – along with the rest of retail – could have sold more units, but the sales have continued with every stock drop. It seems like many third-party publishers have been wary to launch new releases until the success was gauged over the first six months of the console. 

“The titles that have launched have generally been short of stock, so builds must start to increase through Q4. There does still seem to be a shortage of Christmas launches, although the titles that are coming are top titles that should be very successful.”

Meanwhile, Staley tells us he has been handling hardware shortages “with difficulty.” 

“It seems there are communication issues with Nintendo Europe and the UK distributors,” says Staley. “I feel like we should be trading direct, in all honesty. We got many more Wii consoles ten years ago; yet there are far more Switch consoles on the market.”

However, Lindsay thinks the Switch has managed to revitalise the UK market: “Switch has provided a most unexpected shot in the arm for retail this year. Software support has been good after a meagre launch, and there is a definite consumer buzz around the console.”

Pictured above, from left to right: ShopTo’s Alison Fraser, Green Man Gaming’s Paul Sulyok, Games Centre’s Robert Lindsay, Amazon UK’s Russell Jones and GameSeek’s Stephen Staley

The Switch stock shortage might just be the first of 2017, though, with retailers now telling MCV they fear a similar situation with the upcoming launches of Nintendo’s Classic Mini: SNES and the Xbox One X. Microsoft marketing VP Mike Nichols announced last week that the platform holder “saw record-setting sell-out times and are currently sold out in many countries around the world” and that “fans have pre-ordered more Xbox One X Project Scorpio Edition consoles in the first five days than any Xbox ever.”

Even Amazon UK is sold out at time of writing, which doesn’t bode well for UK retailers – especially indie stores, says Robert Lindsay:

“Shortages on Xbox One X are a particular concern, as historically Microsoft has been very supportive of a few key national retailers, but not so good at filtering the stock through the chain to the independent sector. Hopefully, Nintendo will have learned from the surprise of the Mini NES performance and have increased stock available [for the SNES].”

Staley voices a similar concern and fears stock for the Xbox One X will go to online giants and supermarkets: 

“I am concerned that the likes of Amazon and Asda will get more stock than games companies like us,” he says. “But we have had these conversations now for the last 15 years. Nothing changes. It’s pretty sad, to be honest. The games customers are at our website. I will try and work with Microsoft, but at present it seems only interested in the revenue we are doing and not our potential. We don’t sell books, we don’t sell clothes and we don’t sell groceries. If we were, we would be doing ten times as much. Something is clearly wrong. The manufacturers of games consoles should supply the games companies.”

What’s more, the Xbox One X will set consumers back £449.99, which is “too high” according to Staley. Alison Fraser adds: “[£449] was very much expected, however it will out price a lot of consumers. The console is very much for the elite gamer, which is, of course, its purpose.”

Pricing is an increasing issue for retail in the UK as well, particularly with Brexit looming over the country. For Staley, however, it “made little difference to the retailers as we had to all put our prices up together, [but] Brexit certainly didn’t help the consumer. They are now being ripped off on software prices, but we will do our best to continue to be the absolute cheapest [retailer] in the UK for gamers.”

Meanwhile, CEO and founder of publisher and online retailer Green Man Gaming Paul Sulyok believes Brexit is and will remain an issue for the industry due to the absence of a clear strategy from Government. 

“As a British entrepreneur with a business headquartered in the UK, I am unsettled by the current uncertainty businesses are facing in the country when it comes to what the future holds post Brexit,” says Sulyok. 

“Any changes to the freedom of movement for EU citizens will, in my opinion, block talent from coming to the country, and this could impact our business and industry directly. At Green Man Gaming, 50 per cent of our engineering team and 35 per cent of the company overall are from the EU, and we want to ensure that both our staff and the business are prepared for any changes to the current arrangements.”

He continues: “As an ecommerce business, technology is of utmost importance and without a team of talented engineers, the core of our business will be impacted. This is the reason why we hope that there will be a reasonable agreement between the UK Government and the EU on this topic, and that businesses are given some warning if changes are made so we can plan accordingly.”

Brexit is not the only thing threatening to change the UK retail landscape. While its latest financial results showed improvement year-on-year, share prices of UK retailer GAME have been consistently dropping this year. UK sporting retailer Sports Direct has also now acquired a 25.75% stake of the struggling firm, which provokes mixed reactions among the retailers we spoke to.

“I think it’s a mistake,” Staley says bluntly. “I was expecting GAME to go bust within three years. If [Sports Direct founder and CEO Mike Ashley] had waited, maybe he could have picked them up for next to nothing. However, he obviously is a clever guy – he will have something planned.”

Lindsay says he’s “intrigued” by Ashley’s move. “Like many others, I can’t quite see what his objective is with GAME. Customer demographic? Esports? Asset stripping?”

When asked what the impact would be on his business if GAME went under, Lindsay’s answer is cautious: “In the short term, there would be a healthy uplift in sales as the High Street would be void of its main player. Ultimately, though, we lose relevance as a specialist sector, which can never be a good thing.”

Paul Sulyok echoes this sentiment and highlights the importance of bricks-and-mortar retail, even though Green Man Gaming is digital only: 

“As one of the last dedicated physical game stores on the High Street, GAME plays a very important role in the gaming ecosystem. In order to keep the gaming industry both competitive and wide-ranging, games need to be made available easily to meet every customer’s needs and preferences. There are still some customers that have the instant gratification of being able to immediately take their items home with them after paying and others that like shopping for physical games as gifts. 

“Of course, digital retail is growing significantly in the gaming industry and publishers are moving towards ramping up their digital stock, but I believe that bricks-and-mortar still have a place in the market. However, customers are changing, and physical stores need to be able to adapt to their shopping habits and current trends, as well as provide high quality customer service in store.” 

Adapting to a changing retail landscape is a number one priority for retailers, and product diversification is a key to this issue.

ShopTo, for instance, launched a new marketplace at the beginning of the year, with Fraser saying: “We have been diversifying for some time now and, with our marketplace, this will only increase.”

GameSeek also launched a similar platform in July. This trend has become increasingly important for online retailers ever since GAME launched its own marketplace in 2015, as it allows digital stores to compete with bricks-and-mortar shops’ trade-in services. Staley doesn’t even rule out the possibility of selling books and even groceries “one day,” so the “big gaming manufacturers take notice of us.”

However, even High Street stores need to diversify their product range in order to remain competitive. 

 “Our key areas of diversification has been technology, merchandise and trading cards,” Lindsay says of Games Centre. “After a few years of hard work and mistakes, both areas are starting to pay dividends and have become a significant percentage of our business.”

Some areas of gaming being neglected by publishers is another reason why retailers feel the need to diversify. Family-friendly titles, for instance, are something the market needs more of, retailers tell us.

“There’s definitely a lack of family and kids titles,” says Fraser. “The genre has decreased over the past few years, but there should still be an offering to younger gamers.”

A range of titles are now on offer below PEGI 18, which is important if we are to get more families gaming.

Russell Jones, Amazon UK

However, Amazon’s leader of entertainment media Russell Jones believes things have started to change in the last couple of months: 

“Our best-sellers for 2017 so far show a great breadth of genre – Crash Bandicoot, Horizon Zero Dawn, Mario Kart 8, Zelda: Breath of the Wild, Ghost Recon Wildlands, GTA V, Mass Effect Andromeda, Overwatch, Resident Evil 7, and Rocket League all represent a wide range of genres and price points, as well as strong selling titles for Switch and VR. 

“What’s been noticeable in the last six months, and is visible in the rankings, is a range of titles on offer below PEGI 18, which is really important if we are to get more families gaming on home consoles.”

Green Man Gaming’s Paul Sulyok is optimistic as well, and believes the industry now provides broader gaming options than ever before: “There’s never been a better time to buy and play video games than right now with the widest range of games in the market made available thanks to an influx of independent developers and triple-A studios investing big budgets in classic and new IPs. 

“Games have also become more accessible due to the wide variety of gaming hardware available, and different price points catering to every gamer’s budget.”

Sulyok also notes that big releases coming later this year and in early 2018 should further boost pre-orders and the retail sector as a whole, saying there’s been “high demand in our store and from our community for upcoming releases such as Wolfenstein II: The New Colossus, Middle-earth: Shadow of War, Far Cry 5, Anthem and Metro Exodus.” 

In the meantime, however, retailers eagerly await Q4, which should be bigger than ever again this year, according to Sulyok:

“We’re looking forward to the later part of the year where we’ll see sales pick up again for the store after the summer break when games such as Destiny 2, Call of Duty: WWII and The Evil Within 2 get released. 

“Overall, the quality of game releases so far this year has been strong, and this is looking to continue for the next half of the year, which should be positive news for gamers as well as the retail sector.”