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Analyst: Used Market Rush Unlikely To Affect GameStop

Lazard Capital Markets analyst Colin Sebastian says the used game market can expect to attract some new competitors to GameStop -- although leeching the giant's market share is a lot less likely.
Analysts say that online retailer Amazon's recent entry into the used game market can coexist peacefully with GameStop's share, but Lazard Capital Markets' Colin Sebastian says to expect other retailers to try and jump on board, too. "According to our industry checks, one large consumer electronics retail chain is rekindling efforts to sell used video games, while another general merchandise 'big box' store is in trials to buy back games in exchange for store credit," says Sebastian. Sebastian says that the sector, which he values at about $2 billion annually in North America, is seeing increased competition, and new challenges to current dominance on the part of GameStop, GameCrazy and eBay. With nearly 50 percent gross margins according to the analyst, it's an attractive profitability proposition for retailers. But with high barriers to entry in building a successful second-hand business including inventory balance and pricing challenges, Sebastian doesn't expect anyone to genuinely threaten GameStop's market share any time soon, suggesting that any impact to the leading retailer will take the shape of share price response to news headlines rather than actual lost revenue.

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