Self-service kiosks that let customers trade in used games will expand the preowned market, and help big-box retailers like Walmart and Best Buy get a foothold in the space.
Lazard Capital analyst Colin Sebastian came to that conclusion following a meeting with the CEO of e-Play, supplier of digital entertainment kiosks that house DVDs and video games.
"…The kiosks represent the best chance for big box stores to gain share of used, in our view, without managing the logistical challenges of inventory, quality control, and pricing," Sebastian wrote in a research note on Thursday.
Essentially vending machines for disc-based media, e-Play's machines let customers rent games and movies, and also operate as trade-in ports. The company has nearly 500 locations in "big box" retailers including Best Buy and Walmart, Sebastian said, and each machine can hold over 3,000 discs. The machines are able to identify discs and their playability by scanning the media.
"In general, we believe kiosk vendors provide a low cost and low risk avenue for retailers to drive incremental revenues while monetizing under-utilized floor space," he said. Kiosks also address the logistical challenges of operating an over-the-counter used games business like GameStop's, which has substantial staff, a used game pricing algorithm, and other means of managing a used business.
Earlier this year, following a failed attempt to get into the used games market, Best Buy said it would try out
trade-in kiosks in a few stores. Walmart also began testing
game kiosks in 77 stores, placing e-Play kiosks in leased areas at the locations.
Kiosks won't necessarily steal used market share from GameStop, as GameStop shoppers are typically more "hardcore," while the kiosks at locations like Walmart would be more attractive to casual, "soccer mom" groups, according to the analyst.
Sebastian noted that e-Play CEO Alan Rudy has said gross profit margins for the used games are similar to those of specialty retailers like GameStop. "The company indicated that gross profit margins at retail earned on used games are tracking in the 45 percent - 50 percent range for newer games and 70 percent - 80 percent for older titles, which suggests to us that GameStop’s used margins are likely sustainable," Sebastian said.
"Importantly," he added, "Mr. Rudy believes software publishers are showing more willingness to embrace the used market as consumers are typically buying new games with their trade-in credit."