Kantar World Panel analyst Laurie Krohn discusses the changing face of retail and why it's important to support the High Street retailer...
The face of British retail is changing – and it has been for some time. The growing popularity of online shopping has brought a number of new challenges for physical retailers and in particular specialist stores. Although this has prompted fears over the death of the High Street, specialists are still crucial players in the games market.
The challenges faced more widely by the retail sector have taken their toll on the physical entertainment market: annual sales through the High Street have fallen by a fifth (19 per cent) since August 2010. And High Street retail of boxed games has been hit particularly hard, seeing its sales value decline by over 30 per cent.
The immediate reason for this is a decline in buyer numbers. In the year to August 2012, games retail on the High Street saw 2.5m fewer buyers than it did during the same period two years ago. This is equal to a quarter of all former shoppers and represents 140m in lost revenue. There are a number of reasons for this staggering drop in consumers that affect the boxed games market as a whole rather than just the High Street – including the recession, the rise of digital and the decline of the Wii.
However, boxed games sold online are declining at 11 per cent – less than half the rate of the total market decline (26 per cent) – meaning that internet retailers have substantially increased their share of the market, which has grown from 24 per cent to 29 per cent since 2010.
The popularity of online channels is taking its toll on specialist stores in the UK. The UK has a particularly high internet penetration compared with the rest of Europe – Internet World Stats shows that as of 2012, it had penetration of 84.1 per cent compared with the European average of 61.3 per cent. It also has a more mature online retail base than elsewhere on the continent with consumers more geared towards online purchases for all sorts of products.
Online stores are also stealing share from mail order retailers such as Argos, which are almost non-existent in the games market now, having fallen from 1.2 per cent of boxed games value share in the year to August 2010 to 0.1 per cent in the year to August 2012. Essentially, online firms now fulfil the same function that mail order retailers did in the past – offering infinite shelf space and performing well in gifting and planned purchases, with 71 per cent of games sold through internet retailers being planned with a particular title in mind (compared with the market average of 58per cent).
The analysis above looks at the retail landscape in reference to boxed games, but when digital purchases are included the picture becomes even starker. Internet retailers took 35 per cent of total (physical and digital) games value in the past year and are now very close to overtaking the High Street, which took 39 per cent.
Online retailers are expected to continue to consolidate their position and this is likely to have an effect on the number of specialist retailers on the High Street. But what are the implications for the games market?
In the short-to-medium term at least, we would expect a negative impact on overall market value. This is because internet retailers are not as accessible as High Street stores for older shoppers – and these shoppers are particularly important to the market as they are the most likely consumer group to buy games as gifts or for family use. While it's easy to underestimate the value of games purchased for these two reasons, they have actually made up the majority of boxed games sales volume over the past year.
With fewer High Street stores, the older demographic will be less likely to encounter outlets selling games including the awareness of games and making it more likely that they will not be top-of-mind forthe shopper.
Losing the browsability of High Street stores would also contribute to the decline of boxed games, of which 53 per cent are purchased in specialist stores, making 96m of sales over the past year. These are bought where a consumer either didn't plan to buy a game or wanted a game but didn't have a particular title in mind. In contrast, for the internet, this figure is only 29 per cent.
Despite the troubled times specialist retailers face, they still play an important role for the games industry. Publishers would therefore be wise to support their High Street base. The recent move to extend the time period for big games releases in the second half of this year is a step in the right direction.