Last week The Telegraph ran the headline ‘Can GAME Group survive?’ It was a sensational headline, not entirely based on the facts of the situation, and as GAME Group CEO Ian Shepherd says: “It is very easy to look at any retailer on the High Street and write an apocalyptic headline.”
But The Telegraph didn’t pluck its downbeat outlook from thin air. GAME Group did issue a profit warning and its like-for-like sales are down 10.6 per cent for the 41 weeks to November 12th.
But GAME isn’t in the same boat as other retail strugglers, argues Shepherd. For starters, “our market share is high and growing,” he says, and “we are a strongly cash generative business. Even with the guidance we have given, with a lot of the industry analysts concluding that we will probably make a loss this year, even in that circumstance we will still generate operating cash flow. And cash is king.”
THE BLAME GAME
GAME said in its interim statement that it continues to outperform the market – but the market isn’t performing as it should. One analyst described it to MCV as GAME’s regular ‘the dog ate my homework excuse for bad news’.
But that’s not entirely fair. After all, if a retailer is growing its market share, and beating its rivals, then you can’t ask much more from it. Can you? Shepherd says that the biggest reason for the slump in consumer spending comes down to confidence.
“What we can see as shopkeepers, is that the customer is coming to buy new games, but is worried about the future, not wanting to spend too much,” he says. “People are switching spend from one category to another. Buying the big release game but not buying the hardware or the accessories. And therefore the market overall remains really challenging.”
But what about digital? Isn’t that taking away sales from GAME’s core business?
“There is no doubt that the games industry is changing, and we are positioning ourselves very well for that,” insists Shepherd. “But what we are seeing in 2011 – the difficult, negative like-for-likes – is less about structural changes in our industry and more the wider economical environment.”
The congested release schedule – something Shepherd has criticised in the past – hasn’t helped either.
“2011 has seen some of the best games for a very long time. Publishers will have a lot to be proud of there,” he adds. “They may look back and question the wisdom of launching all of those games all at the same time. But those scheduling issues are not the things that have shifted the big picture in the market place. That is the wider economy.”
DEATH OF WEEK TWO
There’s a trend throughout all of Shepherd’s answers. It’s consumer confidence – not digital games, not the cyclical nature of the market, not a congested release schedule – that is hurting GAME. And a key example of this is how quickly sales are dropping off for big new releases.
“There is a real core consumer for each game, who is coming out very early to buy that game,” says Shepherd. “But then the wave of customers that might be coming in week two or week three are perhaps more cautious, maybe they are waiting for Christmas or some other event.”
Some publishers and analysts have other ideas to what is causing the big week two drop, such as the rapid depreciation of game pricing. Take Square Enix’s Deus Ex: Human Revolution. It cost £39.99 from GAME at launch. It’s currently on sale online for £11.99.
“If you are seeing that behaviour in the market, that is only evidence that consumers’ willingness to spend money is harder to come by,” adds Shepherd.
And what about pre-owned? More than ever customers are trading in their games barely a week after buying them. Why would a customer want to buy last week’s game new during week two, when they can pick it up for a few quid cheaper pre-owned?
Shepherd dismisses this: “Pre-owned is here to stay. And it is a really valuable part of the games industry. What we are seeing at the moment, is more fundamentally driven by consumer confidence.”
BRAVE AND THE BOLD
For all of GAME’s legitimate excuses, there is another global games retailer that is defying the trends.
GameStop has seen its sales increase year-over-year. Boosted by an increase in digital sales. Whereas GAME is making strategic changes, GameStop has been more dramatic, making bold acquisitions of streaming and social games platforms.
“The idea that GAME is not doing new things is frankly one I would reject,” says Shepherd. “If you come into this business, you will see a whole bunch of people working incredibly hard to grow new revenue streams. So to grow our digital revenue, to replatform our websites, to launch strategic partnerships such as the one we have announced with OnLive, to do all of the strategic things that we have done in and around our stores… This has been an immense amount of change for this business.”
GAME and GameStop are both heading in the same digital direction. Whereas the US-based giant has jumped in with both feet, its UK rival is being more measured.
But if GAME no-longer wants to be beholden to wavering consumer confidence and the increasingly unpredictable boxed games market. It might need to be a little bit bolder, a little braver, in finding new revenue streams.