Amid uncertainty in the games market, GAME has decided it is time to float on the stock market once again. Risky?
Martyn Gibbs tells MCV why it is anything but…
Why IPO now and what's the aim?
It has been a lot of work getting us to today. But the general feeling has been exceptionally positive. We have spent the first year transforming the business and we have worked hard and closely with supplier partners, the internal teams and our customers to make sure now that we have the right sized business both in the UK and Spain, and that we have the right financial architecture underneath the business. Those were the most important elements of the first year.
We then focused on our strategy, especially around digital and where we were leading the way in terms of a lot of the digital activity that we were doing. This is now the right time. The new consoles have launched, the industry has obviously got significant visibility on its growth over what has been a long period of time now. And we have integrated ourselves very well with our supplier partners from a digital perspective. So we have the right financial architecture, the right strategy and the right partnerships to aid and support us going forward.
What we are hoping to do by coming to market is to normalise some things. We are going to come to market with no debt, which will allow our supplier partners to hopefully go out and gain normal credit insurance and things like that. That means we will be able to focus on all the growth opportunities that we have got with our partners and really spend all of our time on that.
You've renamed yourselves to GAME Digital. Why change that?
It's what we do. We see that everything we sell is digital. Ok, some of it is on a disc, but we really don't care whether we are selling physical or digital content. What we want to do is sell all of the right content for all of our different customer groups. We have worked really well with suppliers on this. They've been really supportive and have seen the significant benefit of us being able to pick up on and drive through digital to a huge population of customers. If you would speak to any of our partners, they would say that our focus on digital has really led a long way towards our success
"What we are hoping to do by coming to market is to
normalise some things. We are going to come to
market with no debt, which will allow our supplier
partners to hopefully go out and gain normal credit
insurance and things like that. That means we will be
able to focus on all the growth opportunities that we
have got with our partners and really spend all of
our time on that."
Martyn Gibbs, GAME
After PS4 and Xbox One have had their day, the industry's future is not certain – therefore GAME's future is not certain. So some analysts may feel any investment in GAME would be a short-term hold. What would you say to that?
There's two things here. The first is how flexible is your business? And I'll go back to the financial architecture point. We have an average lease length on our stores of three years now. If you ask the question: How many stores do you think you'll have in five years time? My answer is: we will have roughly the same amount of stores as now. Because the vast majority of digital purchasing is happening within our stores. If you go forward five years it won't look much different. So I don't see this as a short hold at all.
People get a bit wound up at times with the physical versus digital piece. We are just selling content in a way that customers want to access it, such as how they pay for it. The vast majority of our customers are not buying digital content with credit cards. Will those people be buying content with credit cards in five years time? Probably not. There's a big piece for me in terms of people confusing the word digital with disintermediation, and actually the vast majority of our digital purchases are made within a shop. And I do think that will carry on.
You say you have 53 per cent share of the retail digital space.
Yes. There's a better stat than that: 75 per cent of our digital purchases are not with a debit or credit card. That just gives you a feel about why we are so comfortable with our position.
You describe your stores as an important marketing tool for your suppliers. Is that what your High Street presence is now?
It always has been. We are a marketing channel and we see ourselves as a cost-effective way to engage with huge numbers of gamers. You know how passionate we are about community, and we have all of our stores set-up on Facebook and Twitter. And they engage with their customers in different ways in each area. The Newcastle guys talk differently to the Liverpool guys and so on. It's a massively important change in the way you are marketing today compared to how it used to be.
The cyclical nature of the games market can frighten investors. How do you relieve the impact of the console cycle on your business?
Most of it has been relieved itself. If you look at the PlayStation and Xbox content market, they are amazingly stable. They are showing good growth over the last 13 years and we see that continuing. The huge upsides and downsides that the industry saw around Nintendo Wii, and a bit of handheld as well, all of that fallout has already happened. So in terms of going forward, when you look at our core markets – PlayStation and Xbox – it gives us real comfort that the word ‘cyclicality' is there around hardware, but not content. Because we just want to sell as many units of hardware as quickly as we can, just because we then have a bigger population to sell content to. You can't really class the market for PlayStation and Xbox as cyclical from a content
You say that second-hand sales grew last year and you expect it to grow again. Digital content cannot – as of now – be traded in. If we're moving into a more digital industry, do you still expect pre-owned to exist in a significant way in the mid to long-term?
We see trade-in as a very important payment method. Our supplier partners both understand and work with us on that. Where we see pre-owned going forward, we have recently launched something called Gametronics, which is basically people being able to trade in their phones and tablets. We utilise that to really just sell more and more consoles. People using phones to trade-in against consoles is a great thing for us and the industry because we will have more people within core gaming.
"People get a bit wound up at times with the physical
versus digital piece. We are just selling content in a
way that customers want to access it, such as how
they pay for it. The vast majority of our customers are
not buying digital content with credit cards. Will those
people be buying content with credit cards in five
years time? Probably not. There's a big piece for me in
terms of people confusing the word digital with
disintermediation, and actually the vast majority of our
digital purchases are made within a shop. And I do
think that will carry on."
Martyn Gibbs, GAME
You've proposed giving away shares to your loyalty card customers. Why?
We live and breathe everything to do with the word ‘community'. When we first made the proposal to Elliott, our investor, they were really engaged with it. They hear me saying the word ‘community' more than any other. So we will be offering free shares to our teams, all around the UK, and also we wanted to reward some of our customers. There will be 20,000 customers that will receive 100 of virtual shares, which they will be able to convert into points. It's a really good one for us. I think our store teams and our customers will think it is appropriate. There are a lot of people that have built the business to what it is – our customers and teams are a very big part of that.
You talk about your 16m reward card holders. Are they all active customers? If not, what's the strategy to attract lapsed gamers?
Good question. We have about 7m active reward card customers, and we do two things: we retain our customers through our offers, the way we allow them to play and the specialist attributes that we have. But it's also about the number of people that we can bring to our business. The biggest way we do this is through community activity and what we are doing in all of our channels. So it's ecommerce, m-commerce, our app and our stores. We've seen significant engagement with our app since launch, and we will continue to invest in that area to ensure we bring more people into our active base