Translator from the gaming massive to the corporate big wigs in the world, Michael Pachter has prodded some retailers in the UK with the proclamation that they are a “Joke”. That is great because I’m a huge fan of comedy and love a good joke every now and then.
As it turns out, it is not the “Two guys walk into a bar…..” type of joke. It is more an assumptive statement where he says that is it a joke because the retailers there are not taking it seriously enough to be profitable. What has been happening in the UK is that in order to stay competitive, brick and mortar stores have been undercutting the prices of games to drive traffic into their stores. What that means is that they are losing money on every sale that is made and it appears to be a wide spread practice.
What we are also seeing is the lack of new business models that will help companies stay in business. If you were to look at Gamestop, they make on average 20% off of new game sales. So that means that they make about ten dollars profit per game. When you have a work force plus the cost of new product, rent, etc. that margin is too small to have a successful brick and mortar store run. New stores will have to diversify their sales portfolio in order to stay in business and stores like HMV, Blockbuster, and GAME didn’t do that. So now they are closing up shop and going bankrupt all over the place.
The biggest competitor to the UK retail industry is Amazon.com and other online outlets like it. But one thing that they have not been very successful in doing is providing trade in credit for used games which is still a driving force in today’s market. The retail model is quickly shifting and companies here should take note on what to do in order to protect themselves from further closings.