FEATURE: Rush to cash in store credit could expedite GAME demise

Ben Parfitt
FEATURE: Rush to cash in store credit could expedite GAME demise

GAME’s Spring Clean sale has certainly proved popular with customers. But has it helped or hindered GAME’s current plight?

Go into any GAME or Gamestation outlet today and ask customers what they are doing. Many will tell you they’re using up the last of their store credit in case GAME falls into administration and they lose it.

Indeed, the #savegame hashtag on Twitter has gained a remarkable level of support as those close to gaming recognise the potential danger posed by the possible disappearance of GAME from our High Streets.

But in reality it could be that GAME’s successful Reward Card loyalty scheme could prove to be highly damaging at this most delicate of times.

GAME revealed in its most recent financial report that it has 19.3m customers signed up to its loyalty schemes. A proportion of these cards will have store credit associated with them. This is effectively a debt that GAME owes the customer.

This sort of debt, as GamesBrief’s Nicholas Lovell explains, is a contingency liability. These are monies that are known to be owed but it is presumed will either not be paid back in full or will only be paid back over a long period of time.

It’s the same principal seen in something like Air Miles. Should all those consumers with spare Air Miles chose to cash them in simultaneously, it would bring down the world’s airline network. There would be no funds to pay for fuel or maintain operations. It would be cataclysmic.

Air Miles knows this won’t happen. But what if you’re a retailer who is widely known to be on the brink. And what if all of your customers suddenly decide to cash in their credit at once for fear of losing it?

This has happened once before, of course. When Northern Rock sought liquidity support from the Bank of England in September 2007 it eventually lead to a run on the bank where depositors were pictured lining up outside branches to claim back their money. The bank was taken into state ownership in February 2008.

And the worst thing about it is that this particular contingency liability is not factored into GAME’s current public accounts, Lovell believes.

The question now, of course, is exactly how much money is owed to GAME customers and how much of it will has been claimed back since the sale began last week.

Putting a figure on this is not easy and, MCV will be honest, depending on how we go about calculating it we arrive at very different conclusions.

MCV asked its Twitter followers earlier in the week how much money they had on their Reward Cards. After some stat crunching the average amount was £22. Multiply that by GAME’s 19.3m users and you arrive at the princely sum of £430m.

Now let’s be clear – this not an accurate figure. How many of those 19.3m cards are active? How many are duplicates? How much of that credit simply won’t be redeemed?

Lovell has previously estimated the amount to be £34m. The Telegraph subsequently pinned the figure at £10m. On the presumption that 90 per cent of the cards are unused, MCV’s final estimate is £50m.

That’s £50m worth of stock that has, will or could simply walk out of stores at a time when, quite literally, every single penny counts. “All those people trying to help GAME could end up killing it,” Lovell observed.

#savegame. Yes, indeed. Let’s save GAME. But let’s be clear about exactly what we are doing.

UPDATE: A city analyst has been in touch with MCV to stress that the £10m estimate given by The Telegraph is indeed representative of the actual figure. He also added that Reward Card credit is included in GAME's financials within the accruals section.

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Tags: GAME , analysis , credit , feature , death , reward card , woes

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Comments

5 comments

In response to those of you who have said on Twitter that customers should not be asked to "donate their credit to GAME", I'm not suggesting that!

I had loads of store credit at Gamestation two weeks ago. I don't now.

I simply want to explain the situation clearly to our readers.

Ben Parfitt

Ben Parfitt MCV STAFF
Mar 14th 2012 at 1:49PM

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I used up all of my reward points a few days ago, spent a grand total of 3p and got some good games I missed out on at release time.

Bill Burnell

Bill Burnell INDUSTRY
Mar 14th 2012 at 2:06PM

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It has to be close to the end of the road for GAME now.
There shelves are starting to look very bare,with no new releases coming in & no money available there is just no way they can aquire any more stock be it new or pre-owned.
Once all the stock is gone what is there for them to sell?
& will there fire-sale even cover the rent they owe @ the end of the month ?
Can't see how they are gonna get out of this situation.

mark blackett

mark blackett INDUSTRY
Mar 14th 2012 at 3:02PM

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You think REWARD cards is problem? Really? I had on my reward card around 20-30 eur. But reward card debt's is NOTHING compared with TRADE-IN cards. When I first heard about GAME problems in february I visited next day GAME store and used all my credit (was 289 eur) from TRADE-IN card!

Erik B

Erik B INDUSTRY
Mar 15th 2012 at 10:36AM

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I recently used all of my credit, as many people have, taking advantage of the 3 for 2 pre-owned they were doing and added a 3 month live sub. But GAME only got about £6 from me...

Paul Murphy

Paul Murphy INDUSTRY
Mar 24th 2012 at 4:53PM

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