Wal-Mart Stores, Inc. (NYSE:WMT) has never shied from entering new markets where others are excelling; they’ve moved into groceries, guns, gadgets and gizmos each time it has felt that there is money to be made.
Gift cards
Yesterday, March 17, Wal-Mart Stores, Inc. (NYSE:WMT) announced its entry into the used video game market by inviting shoppers to trade in their used games at 3,100 of its stores. Customers will be given a Wal-Mart gift cards ranging from just a few dollars to a maximum of $35. The cards can then be used on any item in Wal-Mart’s physical or online inventory. Not only is this a surprise move, but the new endeavor will begin next week.
Wal-Mart Stores, Inc. (NYSE:WMT) affects the retail landscape the moment they make a big move, and GameStop Corp. (NYSE:GME) is already feeling the brunt of the decision. While presently rallying a bit, the announcement sent GameStop stock down over 5% earlier in the day. As of noon EDT, GameStop is trading at $37.95, down $1.80 or 4.4%.
The video game industry in the United States is estimated at $21.5 billion, with more than 10% of that number reflecting the used game market. Wal-Mart Stores, Inc. (NYSE:WMT) estimates the used video game market at over $2 billion.
Threat to GameStop?
Best Buy and Target, competitors of Wal-Mart Stores, Inc. (NYSE:WMT), already offer trade-in programs for used games and have, for the most part, not affected GameStop. But this is Wal-Mart, it’s a different story according to many analysts who are concerned about GameStop’s prospects.
Confidence or false bravado elicited a statement from GameStop Corp. (NYSE:GME)’s Chief Executive Paul Raines after Wal-Mart Stores, Inc. (NYSE:WMT)’s announcement. “We win those market share battles because we’ve been at it a long time,” he said in an interview Monday.
For retailers, he said, “there are lots and lots of risks when you’re buying a preowned product.” These remarks suggest that Wal-Mart might not adequately train their staff to properly value trade-ins and that Wal-Mart might get stuck with a large inventory of games it can’t sell.
GameStop Corp. (NYSE:GME) has excelled in the used game market with close to 6,500 locations. Used games represent roughly 25% of its business and nearly 45% of its gross profit. GameStop is expected to shine next week when it reports its fourth-quarter earnings owing to strong holiday sales of more profitable pre-owned games.
This is Wal-Mart Stores, Inc. (NYSE:WMT)’s second foray into the video game trade-in niche. In 2009, Wal-Mart began a much smaller used video game program that never gained traction. By teaming up with accomplished electronic trade-in and recycling company, CExchange Inc., Wal-Mart hopes to make an immediate impact this time.
Wal-Mart Stores, Inc. (NYSE:WMT)’s chief merchant Duncan Mac Naughton said, “our customers can buy groceries, socks or a bike, which isn’t the case at other retailers,” when asked in an interview yesterday about how Wal-Mart can differentiate itself from others in the used game business.
Not surprisingly, Wal-Mart Stores, Inc. (NYSE:WMT) also said the company would begin selling used titles at a lower cost than its rivals, a policy that has made the company the world’s largest retailer.
