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GameStop's argument for preowned video games

GameStop CFO Rob Lloyd discusses what the future holds for the preowned video games market, how many stores the retailer plans to open and close during 2013, and how the Wii U factors into GameStop's plans.

Mike Rose, Blogger

February 13, 2013

4 Min Read

The last year hasn't been especially kind to video game retailer GameStop, as the retail market continues to decline and take the company with it. In particular, the holiday period was rather disappointing for GameStop, as its preowned business showed signs of faltering. During a question and answer session at the Goldman Sachs Technology and Internet Conference in San Francisco, GameStop CFO Rob Lloyd went into detail regarding how the company plans to go ahead with its preowned plans, and what the next console generation could mean for preowned sales. He also touched on GameStop's store plans for 2013, including various shop closures and acquisitions. We've highlighted some key moments from his talk below.

On the future of preowned

"Publishers understand that a healthy preowned games market helps them to sell more new games. And the reason is that our buy-sell-trade model puts over $1 billion worth of currency in the customer's hands every year. And that currency goes primarily toward the purchase of new games. So by offering trades to customers, we sell more new games for the publishers. So the publishers understand that it's important to have that ecosystem in place. "What we see from consumers is that they will buy new games, and some games you can play through faster than others, and so those games will start to come back in trade. And then when customers are done playing their games, they'll bring them back and trade them in. What publishers understand, and what we've helped to educate them on, is that only about 4 percent of our used game sales are games that were released in the last 60 days. So it does not have a big impact on the sales of new products. That's why publishers understand how important the preowned business is to them. "Sony has said publicly that they don't intend to block used games on their next console. Microsoft has not commented on the rumors that have hit the marketplace. But over the course of the last year, we've had the opportunity to do research, and share that research with the console makers, and to demonstrate to them that consumers want the ability to play preowned games. They want portability in their games, they want to play physical games. To not have those things would be a substantial reason for them to not purchase a new console. "I think approximately 60 percent of customers have said that they would not buy a new console if it didn't play preowned games."

What if the next generation blocks preowned sales?

"We'll be able to sell the new consoles regardless of what features, or what they do or don't allow. "We'll have leading market share on the sales of those consoles, we'll adapt to what it does to the preowned business, and one of the ways we'll do that is through a continued healthy preowned business for today's generation of consoles. "In the last year or so, we are starting to scale down what we sell for the PlayStation 2, which means that PS2 is still selling healthy in the preowned market in our stores for about 12 years after launch. We see a long lifecycle for the 360 and the PS3 as we move forward in the future with these new consoles."

Store closures and acquisitions

"In 2013, we might open 60-70 stores in selected locations, which is less than we opened in 2012. We see a need to add stores particularly in tertiary markets. But we will close approximately 250 stores in 2013. This enables us to deal with the very small percentage of stores that we have that are unprofitable, but also to close marginally profitable stores, and actually make more money by moving customers to other nearby stores. We're pursuing the purchase of 40 former GAME locations in France, because GAME has recently shut down its operations in the French market."

The Wii U's performance

"For us, it performed at expectations. I think what we're seeing is that the interest has not been to the overall level that they [Nintendo] had hoped for. It's not performing like the Wii did. "There are a variety of theories as to why that might be -- among them is that there hasn't been a blockbuster title from Nintendo. Nintendo understands that need to have that first-party software available to drive Wii U sales."

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