Price war hits GAME profits

GAME has warned that its profit margins will fall more than expected this financial year as it cuts prices in the face of increased retail competition.

The firm also revealed that for the 44 weeks ending December 4th, 2010, like-for-like group sales were down 8.8 per cent, while UK sales have fallen 14.7 per cent. International sales fared better, up 1.2 per cent. It blames the weak performance of hardware and casual gaming products for the decline.

Online sales remain steady at 0.1 per cent.

The company said in an interim statement that its profit margins will fall between 160 to 190 basis points, as it cuts prices to compete against strong competition including supermarkets.

"All of our territories remain very competitive, with numerous retailers eager to access a market that generates over $40bn of revenues globally," said GAME chairman Peter Lewis in a statement.

"In order to deliver the like-for-like performance we have outlined today and to maintain our market share, we have continued to pursue a value proposition. We offer customers prime trade-in deals and pre-owned products, attractive bundles on mint products, and a wide range of exclusive promotions with our loyalty cards. These activities are integral to our strategy of continuing to build our customer base, and will continue through the Christmas trading period."

For the 18 weeks to December 4th, total group sales were down 7.8 per cent while UK and Ireland sales had fallen 11.1 per cent. In its international business, total sales had dipped 2.4 per cent, while like-for-like sales had risen 0.5 per cent. Online sales for the 18 week period has dropped 1.4 per cent.

The firm said it expects to make 7m in operating cost savings this year, with total capital expenditure to be 18m (compared to 30m in 2009).

"We have been encouraged by the like-for-like sales trends we have seen since the half year," Lewis added. "The difficult market has benefited from a strong launch schedule of new software titles and peripherals, and we have remained committed to our focus on market share.

"We have maintained our leading market share, including for the two key titles in the period, Call of Duty: Black Ops and FIFA 11, which have both broken industry records as the fastest selling games of all time. We were able to achieve this by leveraging all of our specialist qualities: a huge range of products, knowledgeable employees, close supplier relationships, an unrivalled CRM programme, compelling value offers and exclusive extras.

"However, the ongoing weakness in the market performance of hardware and casual gamer products means that we are maintaining our cautious outlook for the remainder of the current financial year. Our most significant weeks are still ahead of us, historically representing over 25% of our annual revenues, and every part of our business is primed to deliver everything our customers need."

GAME said in September that it would close 85 UK stores by 2013. The company currently has 641 UK shops, which is actually six more than in July due to the opening of new concessions in Comet.