Second hand knowledge

Pre-owned sales made up a quarter of GAME Group’s revenues for the first half of the year. But what does that mean for the future of the company – and the wider industry? Tim Ingham asks the firm’s top brass…

You said last week that your H1 results, for the six months to July 31st, were in line with expectations, but profit was down 60% year-on-year. Why has it been such a tough trading period?
Lisa Morgan: We were up against incredibly tough comparatives. Last year, GAME Group and the industry saw a record first half with the likes of Mario Kart, Wii Fit and GTA IV driving significant levels of hardware. We always knew we were going to be up against some tough comps and that we were going to see some negative decline. On top of that, consider the overall hardware impact – i.e. slightly lower revenue, with slightly lower retail prices – and you can understand why our like-for-likes have been cut.

Will there be ‘light at the end of the tunnel’ this year?
LM: Like-for-like comparisons should soften a little bit now [before the end of the year]. The hardware price drop [on 360 and PS3] happened a couple of weeks ago, which saw some good impact. In terms of whether we will be at the same overall levels as last year [in H2], I think it’s going to be a tough ask given the price difference on hardware.

Can anything stimulate your Q4 sales to match those of 2008?
LM: I don’t want to appear negative, because we’re actually very positive. At the end of the day, we had a record year last year. We enjoyed it at the time, but now it’s about returning to a more normal, seasonal year. I think we’ve got a really strong line-up of product in the final quarter. In terms of GAME’s activity, we’re going to be working closely with publishing partners. The buying team here have done a great job of securing some great offers and promotions for our customers this Christmas.

In your H1 fiscal results, you said that pre-owned sales rose to 177m, accounting for a quarter of revenue. Are you expecting this to grow even further in the next 12 months?
LM: A 12 per cent increase in pre-owned sales was pleasing for us, but I think we have to put into the context of the year as a whole. We’re a very seasonal business. Traditionally, you would see a higher dissipation of pre-owned in the first half compared to the second. We certainly hope that [pre-owned’s impact] will be better year-on-year, but we expect will be softer in the second half of 2009.

Would you expect similar year-on-year growth in H1 2010?
LM: One would hope so. One thing we’re seeing now is the take-up of trade-ins as a means for consumers to get access to new games. They’re using their old games as currency to get their hands on new games. There is a trend there and hopefully that will translate through to sales. It’s certainly playing a key part in driving new titles right now.

Just to clarify, you’d expect somewhere in the region of another 12 per cent growth in your H1 pre-owned revenues next year?
LM: That’s guidance, and we can’t give guidance. Obviously I couldn’t do that. We would suggest that you’d continue to see the same kind of trend. Going back to that point about pre-owned vs. new, one thing that’s key to us is that pre-owned makes significantly better margins. When you’re an operation the size of ours, it’s important to drive to be as profitable as you possibly can be. We’re investing in new stores, e-commerce and further initiatives to grow the industry.

If I were a publisher, I’d be tempted to ask if you will put a cap on the percentage of your sales that pre-owned may eventually take up…
LM: It’s not up to us to restrict the way in which our customers buy. It’s about us putting an offer in front of them. The one thing I will say is that we’re absolutely committed to new [releases]. We have full aspirations to maximise both hardware and new software, and I think all of our partners know that. It’s just about ensuring we have the right offer for our customers and letting them make the choices.

One thing we’re seeing in the US are kiosks selling pre-owned games. Do you have any plans to introduce this into the UK?
LM: We have some trials running at the moment.

Where are they running?
LM: I don’t have the specifics to hand.

Are they in the UK?
LM: Yes. We are a business that trials lots of different initiatives for our customers and sees how they respond.

Are they in-store, in concessions or in shopping centres?
LM: It’s an in-store initiative we’re looking at right now.

Do you have any concerns that PSPgo and future digital-only consoles will damage the pre-owned side of the business?
LM: As I said earlier, we’re absolutely focused on driving new hardware and software. PSPgo is a new piece of hardware in our market, we’re the specialist – and we absolutely want to be serving our customers with this. We don’t see PSPgo as a threat; we see it as an opportunity.

Dutch retailer NedGame has refused to stock the console. Why have you decided to welcome it with open arms?
LM: I can’t really comment on where other people are with their discussions. We’re a specialist retailer and our customers want it. Like everyone else we negotiate with our suppliers.

TS: If the customers want a product and we’re a specialist, we should absolutely embrace that product, stock it and deliver it.

Do you have concerns about a disc-less future for consoles? If fellow systems ‘did a PSPgo’, how would it affect GAME?
LM: We want to be in a position where we’re looking after our customers’, gaming needs. We recognise that the market is changing, and we recognise that the time of that change is relatively slow right now. It’s important we understand our customers and how they are evolving so that we can adjust our offer accordingly. Our Reward Card allows us to capture a lot of information about our customers, and we’ll be learning as we go.

How can GAME tap into consumers’ hunger for digital content?
LM: We interface with our customers through every journey of every purchase. Whether it be through top up cards or unique arrangements, we think there’s a role for us to play.

Q1 2010 is looking like a ‘mini Q4′, with lots of major titles delayed. How timely is that boost at a traditionally quiet time?
Terry Scicluna: I think there’s definitely going to be some good momentum coming out of Christmas. As Lisa mentioned, we’ve lined up some fantastic exclusives across some of the biggest titles. The ‘only at GAME’ or ‘only at Gamestation’ approach this year is looking fantastic. We’ve got the 250GB Modern Warfare 2 360 package, as well as the Limited Edition game. We’ll be working closely with our customers – using our Reward Card database – as well as publishers and manufacturers to bring these exclusives to life. Coming up to Christmas, there are some really good titles, but I still think it is going to be fairly tough [for the market]. Last year was a blockbuster year, and we’re still up against some pretty strong comparatives.

You said in your results that you were looking to open 50 or 60 stores this year. Where will they be?
LM: We’ll be concentrating those stores in two markets – Spain and Australia. Spain because it’s the second largest market in Europe for us, and Australia where we’re continuing to drive sales and pick up scale.

Will any of those stores be branded Gamestation? We recently reported that you’d opened a trial Gamestation store in Spain…
LM: That depends on where we are within the maturity of the market and whether the consumers respond well to it. In Spain we’ve got a trial of three stores right now. It’s important for us to let those stores trade through Christmas and see how they perform.

Will you be opening any temporary stores to deal with extra demand this Christmas?
TS: No. After we had temporary stores last year, we recognised the need to increase floor space across our store portfolio. Throughout the year we’ve been looking at that, but to set up the right stores in the right place. In Croydon, for example, we’ve created a much bigger store – where last year we had a temporary outlet. We’ve also put much more efficiencies – including more tills into the stores – so that we can cope with the Christmas peak. In addition, we’re employing 1,100 people over the Christmas period as temporary labour.

How has the integration of Gamestation’s York office into GAME’s Basingstoke HQ  played out?
TS: We’ve been delighted. We’ve absolutely got one business with two brands now.