Games retail fights back

Back in 2007 – at the start of the last console generation – there were over 1,000 video game specialists on the High Street. 1,070 to be precise.

Today, there are 605.

It’s even worse if you look at the number of music and movie specialists that sold video games. That number has dwindled from more than 1,100 to just over 130.

Those are Chart-Track figures, and admittedly the stat tracker does not count every last indie, but it gives you an idea of the High Street’s decline.Zavvi, Woolworths, HMV, Blockbuster, Chips and GAME have all fallen into administration over the last six years. Some survived, most didn’t.

The reasons for the decline are abundant. Margins are too low, consumers are switching to digital, publishers are releasing fewer games, we’ve lost Nintendo’s audience, Guitar Hero died.And most of these areas are not expected to improve. In fact, between now and the launch of FIFA 15 at the end of September there are just 25 games on the MCV Retail Release Schedule.

Yet for all the negativity, some positives are starting to creep back into the games retail space. GAME has just had a successful IPO, GameStop is investing some of its huge wealth into new business areas and both High Street and online retailers are beginning to find a space for themselves in the lucrative digital marketplace.

The question is whether all this success is just short-lived and driven by the launch of PS4 and Xbox One? Won’t gamers eventually just switch to proprietary digital platforms like Steam, Xbox Live and PSN eventually? And how can we avoid the sharp cyclical declines that killed entire businesses over the last generation?

Well, as it turns out, retailers do have a plan.

Perhaps the hardest challenge facing games stores – online and offline – is the drop in the number of physical games being sold.Publishers for many years now have adopted the ‘fewer and bigger’ model towards games development. It’s helped those publishers endure a challenging marketplace, but it has meant that retail has had fewer products in which to sell.

Well, at least it did.

We see that everything we sell is digital. Some
of it is on a disc, but we don’t care whether we
are selling physical or digital content.People get
a bit wound up 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
they 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. Actually the majority of
our digital purchases are made within a shop.
And I do think that will carry on.”

Martyn GIbbs, GAME

If you go back five years, when a new FIFA or Madden is released, customers would see the DVD case in store, pick it up, buy it and off they go,” explains Mike Mauler, the international head of global games retailer GameStop.

Today it is totally different. For example with Watch Dogs there was not only the physical game, but also digital content that was available and displayed. There were add-ons like t-shirts and coffee mugs. We no longer just put the game up on the shelf and sell that, we sell the whole experience to the customer and offer a lot of different options, such as specialist controllers and headsets. So that has changed a lot.”

Gaming merchandise has enjoyed significant growth over the last 18 months. We’ve seen a number of new businesses that specialise in these add-on products, toys based on video game properties were worth 80m in the UK last year, while Minecraft books alone generated 2.58m.

Merchandise is not the only opportunity. Retailers have found ways to get a slice of the digital market by selling points cards.

It may seem bizarre that consumers are travelling to shops to buy a points card only to go home again to download a game, but stores have discovered that a high proportion of customers buy this way because A: They don’t have a credit card or prefer to buy in cash or B: They can trade-in products against points.And last year points cards generated 148m in the UK according to Chart-Track.

It’s perhaps no surprise GAME has rebranded itself GAME Digital.

There is an issue with discoverability in
digital. There’s so much noise out there
it is hard for the consumer to find the
content that will be most compelling to
them. Retail brings that to the consumer
and can answer questions."

Mike Mauler, GameStop

We see that everything we sell is digital. Some of it is on a disc, but we don’t care whether we are selling physical or digital content,” said GAME boss Martyn Gibbs.

People get a bit wound up 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 they 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. Actually the majority of our digital purchases are made within a shop. And I do think that will carry on.”

He added: 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.”

GameStop’s Mauler is equally bullish about digital.

We sell a huge amount of digital content, including on Steam. We have a strong partnership with them and we are selling millions of dollars of Steam cards. As more content is added to Xbox Live and PSN, we will sell more points cards and more DLC and help deliver that to consumers.

There is an issue with discoverability in digital. There’s so much noise out there it is hard for the consumer to find the content that will be most compelling to them. Retail brings that to the consumer and can answer questions. For Watch Dogs our store associates spoke to customers about Season Passes. That’s a lot different than when something pops up on the screen. Specialist gaming retail is a huge benefit to publishers who are looking to bring digital to consumers.”

Merchandise is certainly an exciting prospect for games retailers, but its growth remains gradual and it’s hardly about to replace software as a significant revenue drive. Digital cards are growing fast, but these are not high margin products. And retailers surely can’t build their business around selling points?

No, in fact they’re building their business around custome