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Pachter Predicts Problems for Best Buy Pricing Program

| 11 Aug 2009 17:24
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Industry analyst Michael Pachter says Best Buy's pilot program offering new videogames for the same price as used equivalents from GameStop is destined for failure.

Best Buy began testing the new game pricing policy last week at a store advertising brand-new videogames for the same price as pre-owned copies being sold by GameStop and GameCrazy. Under the program, every game in the test store (a Best Buy rep confirmed that it was in fact a local test and not nationwide, although whether more than one store is taking part is unknown) is subject to some kind of discount to keep them in line with used prices.

Lower prices on games are always good for gamers but Michael Pachter, the industry's foremost guy with an opinion, says they're not necessarily good for Best Buy. People near the test store in West Jordan, Utah, who want to take advantage of this sweet deal had better move quickly because Pachter doesn't think the program is going to be around for long.

"I don't think it will do well," he told GamePolitics. "The price match means that Best Buy either cuts their profit per game in half, or wipes it out altogether. I don't think that they can afford to sell $60 games for $50, and don't think that it will be effective in the long run. If it does well, then GameStop will cut used game prices to the point where Best Buy can't match without losing money."

I'm no big-time analyst but I do know a thing or two about margins on videogames and to put it bluntly, they're tight. Lack of profit on new game sales is the main reason GameStop is so enthusiastic about pre-owned games (which offer much greater profit), warranties and other programs. If Best Buy is forced to hack ten bucks off every new release it sells, it will almost certainly end up selling its games below cost, whereas the much greater profit margins on pre-owned games will allow GameStop to lower those prices substantially and still make a few bucks. It's a potential windfall for gamers as the two companies try to outlast each other, but I have to go with Pachter on this one: I don't think this is a fight Best Buy can win.

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