ANALYSIS: Retail veterans under pressure

We’ve been down this road before. Another bleak set of retailer financials, another article in MCV wondering what can be done about it.

But now the situation has become more pressured.

GAME posted devastating festive results, with sales down 17.6 per across UK and Ireland. While over at HMV, the retailer is re-evaluating its games offer entirely. Influential head of games Tim Ellis has gone and the category’s space in-store could be next to go.

As MCV itself reported recently, the market has been markedly down over the past few weeks, which unfortunately had a knock-on effect on our trading,” says HMV CEO Simon Fox. It’s a pity, as our like-for-likes would have been a lot more positive if we’d been in a position to perform more strongly on games and there’d been more titles and products to get behind.”

FIGHT FOR SURVIVAL

HMV lost market share in games, and as a retailer fighting for survival, it can’t afford to waste time with a category that’s not delivering the results.

In contrast GAME Group grew its market share. Not enough people came out to buy games last year,” says GAME CEO Ian Shepherd. But when they did come out to buy video games, they bought them from us.”

GAME benefitted from some serious publisher support throughout 2011. A prime example was the specialist’s pre-Christmas campaign for Elder Scrolls V: Skyrim, which Shepherd tells us was planned with Bethesda a long time before the game even came out”.

As an industry, we are stronger when we work together. The more closely we work together, the more we plan, the more we market, the more we innovate for the customer, the better.”

HMV wasn’t afforded quite so much love from its games partners. But even with all that publishing support, GAME couldn’t defy the economy. There’s a big problem on the High Street that some pre-Christmas deals were unable to fix.

The games market was very weak all the way through 2011, and over Christmas as well,” says Shepherd.And there’s no avoiding the impact of a market being double-digit negative on a retail business.”

So how do we strengthen the market? Shepherd suggests new machines might hold the answer.The games hardware market was much more negative than the software market,” says Shepherd. I think that tells you that the consumer is ready for more innovation in that space.

"Whenever I see the platforms bringing new hardware to market, that excites me. Whether it is in the handheld space with 3DS and Vita, or in the home space with Wii U. All of that will excite the consumer in coming back to the games market again. Innovation in technology brings the industry back to growth.”

Simon Fox also points to really big launches” in 2012 before listing Vita and Wii U amongst GTA V and Max Payne 3.

But is the arrival of new consoles really good news for specialists? Panmure Gordon analyst Philip Dorgan stated last week that the prime benefices of Wii U and Vita’s launch will be the supermarkets and online retailers, not GAME or HMV.

Shepherd scoffs at this.That defies any reading of video games industry history,” he says. When new consoles come to market, customers want to hear about them early, they want to hold and touch them, often they want to put pre-orders down, and they want to bring back their old ones and trade them in. All of that lends itself to the model of the specialist.”

WHAT’S NEXT FOR RETAIL?

HMV has already sold off Waterstone’s and its Canadian operation to help reduce its debt. Meanwhile, GAME is continuing to cut costs and its store base. And Shepherd hasn’t ruled out taking other measures.

We have reduced the number of stores that we have in the UK already and that programme will continue this year,” says Shepherd. We have taken other operating costs out of our business over the course of the last year, and I have no doubt that we will need to continue to find ways to be more efficient. I am not saying nothing will change, but I am saying that it will be the same sort of change that we have been working through over the last year.”

GAME expects 2012 to be another difficult year for video games on the High Street. Shepherd even admits that he’s ‘not surprised’ if retailers like HMV decide to back away from the market as selling games in the UK is extraordinarily competitive”.

The question remains whether publishers should fight to save our shops. With sales growing in the digital space, shouldn’t these companies be investing in social, mobile and downloadable games, not the risky physical space?Do we even need retail?

There’s no denying the positive impact a vibrant High Street can have for the industry. Shops are a place to discover new games, to play the latest releases, and even launch products. There were multiple midnight openings on the High Street last year. Developers even showed up to GAME?Oxford Street to sign copies of the latest titles. You can’t replicate that excitement online.

We are integrated into the games industry and we want to stay that way,” concludes Shepherd. Without us the games industry would be a different and much smaller place.”

There’s only one way to find out if Shepherd is right. Do we really want to find out?

NOTE: Since this story was written HMV’s future has been secured thanks to a new agreement with its banks