WOOLWORTHS FALLOUT

Ben Parfitt
WOOLWORTHS FALLOUT

Talk in the industry is all about the fallout, and some in the games market believe that there’s still a lot of bad news to come from the demise of Woolworths.

But with the retailer still in the throws of what may well be its demise, the thoughts of the majority of those in the tight-knit UK games industry are still with those who face losing their jobs. And there’s a good old spot of sentiment, too.

“It’s an enormous shame to see a corner-stone of British retailing headed this way,” Activision UK MD Andrew Brown tells MCV. “In addition to the likely human consequences, and the possible demise of a great British tradition, there is also the concern about possible loss of space for the games category in front on the High Street shopper and consumer.”

Don McCabe, joint MD of leading UK indie CHIPS, agrees: “It’s a real shame for the people who are going to lose jobs, especially in the current economic climate. I always had a lot of admiration for many of the people there, particularly Gerry Barclay and Juliana Foley. They were extremely good people of a high calibre and I’m sure things would have been a lot worse for them had people such as that not been there. Woolworths were a responsible retailer in an irresponsible market.”

Matthew Allen, the boss of distributor Trilogy, adds: "Clearly it is very sad when such an established company such as Woolorths goes into administration with the potential of 30,000 people losing their jobs, especially at this time of year."

But in the cutthroat world of business, there’s only so much sentiment to go round. And all onlookers have now begun accessing the possible fallout of Woolies’ demise. Its first high-profile sale, to the relief of all in the trade, seemed to spare the games market, with the ‘up to 50 per cent’ discounts in reality representing savings of a few pounds at most.

“In truth they are only discounting 10 per cent off games – a lot of angry customers have been in my stores complaining about the false advertising,” Gary Noakes, MD of Brighton-based indie chain Gameplayer, tells MCV. “They sell software full price so this is no problem to Gameplayer which specialises in pre-owned or discounted new stock anyway.”

And James Flower of retail analysts Verdict Research agrees that gaming remains safe for the time being. “I would imagine that whilst the administrators are keen to shift excess stock, I wouldn’t think that they will be applying massive discounts across every category,” Flower explains to MCV. “With regard to stock such as games and consoles, I wouldn’t imagine they will be knocking these down dramatically. They’re unlikely to have excess stock. There will be discounts, but big key Christmas selling games will remains solid in price as there is a demand for them.”

And, truth be told, even if the administrators do go stir crazy and drastically reduce the price of their remaining software titles, few are concerned of any genuine impact on the market.

“Price deflation is an on-going concern as retailers fight for share in the market,” Activision’s Brown adds. “The current price wars were an expected development in the current market conditions, but any short-lived additional discounting will not in itself significantly change the landscape.”

McCabe agrees: “Most retailers have already reached their discounting limit, and are already working on minimal profit margins just to get customers in. I don’t think other shops will follow Woolies with aggressive discounting if that’s what they do.”

But that only tells half the story. Administration may be bad news for companies associated with Woolies or EUK – but liquidation is a far worse scenario, potentially leaving many firms severely out of pocket.

The implications will be more worrying for some than others, of course. A recent report in The Sun claimed that format holders Nintendo and Microsoft are owed £21 million and £26 million respectively. Nintendo’s UK boss David Yarnton exclusively revealed to MCV that the real figure is about half of this – still a sizeable sum, but not something that will trouble Nintendo. Microsoft declined to comment on The Sun’s numbers, but even if they were right, Bill Gates’ old firm won’t be laying awake at night worrying.

Ubisoft’s chief financial officer Alain Martinez has also revealed at the recent UBS Annual Global Media Conference that his firm stands to lose out as a result of the collapse to the tune of €1.5-€1.8 million.

Nintendo, Microsoft and Ubisoft can absorb these costs, albeit begrudgingly. But there are a host of firms who are still awaiting to discover their true losses, and one UK publisher boss, who wished to remain anonymous, was less reserved in his concerns.

“Woolworths’ first sale didn’t really touch their bigger ticket items such as games. At some stage during this clearance sale they’re going to change that,” he tells MCV. “A serious games sale will arrive at some stage. It has to. They can’t send the stock back. And others can’t compete – you can’t compete with thievery, and that stock has effectively been stolen.

“Consumers are going to get a bargain. It’s a bonus for the consumer, but no other retailer will be able to match the discounts and a lot of other businesses are going to fold because of this. There are people who have shipped things in to EUK who are never going to get the cash.”

CHIPS’ Don McCabe agrees that the full implications of this saga have not yet revealed themselves. “When the likes of ePlay folded it caused ripples that caused problems. Take someone like Woolies out and you’re looking at a potential tidal wave. It’s now about how people deal with that tidal wave. And what about the money owed? What about some of the smaller publishers who’ve got stock in EUK, Woolworths and associated retailers? What happens to them if payments are a little bit held up, or even non-existent? Even if they end up getting the stock back, how much value will it have lost? This ripple is where the real worry is.”

And Trilogy's Allen also believes that more comapnies yet could suffer: "Ideally it would be good for stock to be returned to publishers under their ROT clause to protect pricing and the industry. The administrators will liquidate the stock as quickly as possible and the publishers will sit behind the major creditors such as banks, landlords etc. Publishers will get some money, but only a percentage of what they are owed."

Still, behind every cloud… and as much as polite etiquette still rules that out for the moment, in a competitive market there is always a positive to the demise of a competitor.

“There are already too many retailers in the video games market, so losing one will allow the rest to be a bit healthier,” McCabe admits. “It’s a bit harder with EUK. It fulfilled a particular purpose that served supermarkets and large retailers. The supermarkets’ ability to attack the market as aggressively as they have been will be hampered. I’m sure it will come back, but for the short term it’s a severe blow for them and it will take a while for a few of them to return to good order.

“It brings the games market back into balance for a little bit. It’s kind of like the housing market snapping itself back to reality. The way they’ve been degrading the market, making price the issue rather than the product – that’s all come from EUK partners.”

Gameplayer’s Noakes is equally as frank: “I expect a deal will come about on the actual empty stores themselves rather than the company. For us in the games industry it’s good news. Woolworths did a lot of damage to the industry by breaking street dates and selling at cost, just like the supermarkets do.”

Verdict’s Flower is a little more balanced in his assessment, however: “There are two ways for other retailers to look at this. One way is to say that the demise of a big competitor is good news for its rivals. However, this is balanced by the concern about what replaces Woolworths. EUK supplies a lot of retailers who have been forced to shore up their supply lines, so that has an impact too.”

But lest we not forget that Woolworths is not done and dusted yet, and Andrew Brown for one would still like to see the name and the values it represents saved: “The best solution would obviously be for a buyer to be found that respects the heritage of Woolworths and is committed to maintain the positive elements of its ethos whilst understanding how to turn the business around to be viable and successful.”

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