“There's no margin to be made on new releases anymore.” MCV hears this more and more from specialist stores every week.
Once upon a time boxed games would be sold very close to their RRP on release day. But this hasn’t been the trend for years.
Earlier this month we revealed the average cost of a boxed game drops by 23.5 per cent after one month on sale, 30.8 per cent after two, and 39 per cent after three. On day one the average cost to the consumer can be lower than the trade price.
Online retailers and supermarkets are the drivers here. This has put extra pressure on the traditional High Street specialists who can’t compete.
Konami’s UK general manager Pete Stone explains: “Discounting by UK retailers has been ferocious during the past few years. Major retailers justified their discounting by using phrases such as ‘driving volume’ but the reality has been the opposite: it has been a downward spiral.
“In the long-term we are moving towards a new era in gaming, but UK pricing has probably devalued the perception of boxed games and is leading to retailers no longer finding the category profitable.”
Major chains like GAME and HMV had a very difficult trading period last year, as well as indies who are feeling the pinch more than ever. This is due in no small part to the lack of margin on new titles.
“The discounting is serious and suicidal,” says a leading indie, who wishes to remain anonymous. “The £37.49 average launch price for FIFA 12 was already £5.71 below our cost price.
“I wonder what will happen to publishers when the retailers stop funding the discounted prices for them. Surely at some point the goodwill will run out, and would the consumer really pay £54.99 for FIFA 13? Or £24.99 for a new Blu-ray?”
It’s now such a problem, says HMV, that consumers and retailers could miss out in the long-term as price-cutting distorts the market.
“Such a high level of RRP discounting is not likely to be in the best long-term interests of the market or even the consumer, who may find it will ultimately result in reduced choice,” the retailer’s head of communications Gennaro Castaldo tells MCV.
“But when you have supermarkets and internet giants using content to drive traffic and share as part of a wider business agenda, it’s hard to stand back if you want to remain competitive.”
Some online retailers have reacted to maintain profit. ShopTo says it ‘sells closer to the RRP than ever’.
“ShopTo has changed its strategy over the past six months,” says purchasing director James Rowson. “We no longer want to be involved in the price war to chase orders at a loss.”
Gameseek’s MD Stephen Staley adds: “We stock new releases to drum up interest in our site but we’re not bothered if we sell any. There’s no point having a big market share on something that makes you a loss.”
There are ways for specialist retailers to make decent money on new goods.
“I have been encouraging indies to diversify into other lines and products, like mobile phone accessories, and hi-tech toys and gadgets,” says The Game Guide’s Chris Ratcliff. “Of course, it isn’t commercial suicide if you can subsidise the losses on new games sales with a healthy pre-owned business model, but even that has been ‘invaded’ by the nationals.”
Online indie Xbite believes a change at the supplier level would help solve the problem.
MD Nick Whitehead tells MCV: “If the publishers under supplied the market just by five per cent, it would actually ensure a more stable retail price point in the market.”
ShopTo says the answer is not so simple.
“If all games prices go up then the publishers will see a drop in units and may struggle to cover their ever-growing development costs, so the whole strategy needs a review,” Rowson adds.
But with such a competitive UK retail market, there’ll always be those who go low on new releases. The outlets willing to diversify could be the ones which really prosper.