One thing that’s made with superior spit and finesse in the U.S. is the spirit of luring customers from the competition. And so it is that even as Walmart ramps up its patriotic advertising campaign — as Marketing Daily’s Sarah Mahoney reports this morning — it is also setting out to steal market share from GameStop and lesser entities that deal in the rapidly expanding cosmos of used videogames.
The retailer “is expected to announce on Tuesday that starting March 26 it will begin allowing customers to convert old games into store credits in over 3,100 Walmart stores nationwide, most of its locations in the United States,” Nick Wingfield writes in the New York Times. “The program represents a major push by Walmart into a lucrative segment of the games business, one that games publishers have unsuccessfully sought to stymie in the past because of the potential threat used games represent to new game sales.”
In advance of that “announcement,” Walmart executives told reporters on a call yesterday that it is partnering with CExchange — which already handles its smartphone and tablet trade-in program and also works with the likes of Microsoft, RadioShack and eBay — to administer the program.
“The mega-chain will be taking in just games, not hardware, and will be refurbishing the games for sale in stores and online,” Evan Narcisse reports on Kotaku.
“The trade-in value of the games will vary from a few dollars to about $35, depending on their age. Some games considered to be too old will not be accepted. The service is available only to customers 18 and older,” writes CNNMoney’s Parija Kavilanz.
Walmart estimates consumers shell out $2 billion annually buying used games. It says “extra cash from used games will give customers money to spend on newer ones, which typically cost about $60 apiece,” Ian Sherr and Shelly Banjo report in the Wall Street Journal.
But that “extra cash” comes in the form of Walmart gift cards that customers cannot spend at McDonald’s — or whatever mom-and-pop survives down Central Ave. — creating a self-perpetuating profit scenario. The other part of the economics of the program is a no-brainer.
“It’s extremely rare if retailers can find a category that has such high gross-profit margins,” Pacific Crest Securities analyst Evan Wilson tells Wingfield.
But Walmart U.S. chief merchandising and marketing officer Duncan Mac Naughton says it’s just focusing on its customers’ wants and needs. “We just see it as a great opportunity to provide more access to gaming,” Mac Naughton told reporters on the call yesterday.
He added that “the company decided to roll out the program at this time because the industry has come to an ‘inflection point’ following the introduction of new gaming consoles Xbox One and PlayStation 4 last year,” Andrea Cheng reports on Market Watch.
“There are 110 million gamers in the U.S. It’s today’s form of entertainment,” says Mac Naughton.
GameStop, which “has dominated the used video game business for 15 years, and returned $1 billion in trade credits to its customers last year,” as the Dallas Morning News’ Maria Halkias writes, seems almost nonchalant about the wolf at its door. Its “retail network and family of brands include 6,488 company-operated stores in 15 countries worldwide and online at www.GameStop.com,” according to its investor relations site.
“We have faced many competitors in the past who have tried to enter into the buy-sell-trade model, and GameStop has continued to come out on top,” it said in a statement reacting to the Walmart news. “Given our expertise, we will continue to win the battles. We’ve beat out other large retailers when they’ve entered the category. We are confident we will continue to do so.”
Citing the complexity successfully executing a trade-in business model, GameStop CEO Paul Raines tells the WSJ’s Sheer and Banjo, “We win those market share battles because we've been at it a long time.”
Indeed, Walmart has played and lost at a beta of this game. It tested a program in 2009 “that collected games through vending machines and gave money back on a credit or debit card, but that program raised concerns about fraud,” Heather Somerville reports in the San Jose Mercury News. It shut the program down and “has since been working to create a simpler and fairer” system.
If there one thing we all know about the tech market, it’s that yesterday’s hits are today’s giveaways. Asked about the growth of downloadable gaming, Mac Naughton told GameSpot’s Eddie Makuch that Walmart “isn't worried because bandwidth into homes is still an issue for many,” although it has it eyes fixed on the game even as it changes.
“We think being on the shoulders of disruptive tech is good,” he said. “We're ready to grow into digital as that business emerges.”