Wal-Mart Planning To Enter Used Video Game Market

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.

Wal-Mart Planning To Enter Used Video Game Market

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.



About the Author

Brendan Byrne
While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. To contact Brendan or give him an exclusive, please contact him at theflask@gmail.com