Game publishers may not like it but an industry analyst has predicted that the high profit margins on used videogames means even more retailers will likely attempt to break into the trade.
The debate over the merits of used game sales continues to rage but there’s one aspect of the market that both sides can agree on: It’s worth a lot of money. Nearly a quarter of GameStop’s revenues in 2008, worth almost $2 billion, came from pre-owned videogame sales. Those numbers and the relatively high margins on used games have attracted other players to the game, including Toys R Us and Amazon, and Lazard Capital Markets Analyst Colin Sebastian expects that trend to continue.
“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,” he said. He estimated the total value of the used videogame market at “at least” $2 billion annually in North America alone, noting that the market was dominated by GameStop, Game Crazy and eBay.
As attractive as those numbers are, however, he also cautioned that used game sales is a “more demanding” category than conventional sales. “We believe the barriers to establishing a liquid and profitable used videogame business are fairly high, including dedicated systems to track and manage used inventory and pricing, and the ability to refurbish products and restock stores to balance supply,” he said.
He also predicted that despite the increased competition, GameStop will remain the top dog for some time to come. “While shares of GameStop have fallen under pressure historically as word of new entrants in the used market takes hold we note there is little, if any, evidence that competitor initiatives have impacted the company’s revenues,” he continued. “We continue to expect GameStop to maintain a competitive advantage with a core gamer consumer base, broad inventory of new and used video games, and high barriers to entry.”