January 22, 2009
Used as Good or Better Than New for Retailers
There’s always been a
market for used products. Previously owned clothing, consumer electronics
and other products all have a market with consumers on the lookout for
bargains. One retailer, GameStop, has found that it can sell
both new and used items and generate greater sales and profits as a result.
A recent article on The
Wall Street Journal‘s website pointed to GameStop’s most recent monthly
financial report, which showed the chain’s same-store sales up 10 percent
for the period ending Jan. 3. According to the report, used games are
expected to account for 23 percent of GameStop’s revenue for its fiscal
year.
The ability to trade-in
old games for credits on the purchase of new or used titles has helped
set GameStop apart from the competition and drive incremental sales especially
in a period where consumers are reluctant to spend at all.
“Nobody
else has that used-games draw,” Joseph Feldman, a retail analyst with Telsey Advisory Group, told The Journal. “Once
you have played a game awhile and it loses its value, GameStop is pretty
much the only place where you can get something for it, and that’s a big
deal in this economy.”
The
used game and console business is also profitable. GameStop generates about
42 percent of its gross profits from used items. “When you consider
that most retailers operate on single-digit margins, it’s astronomical,” said
Evan Wilson, an industry analyst with Pacific Crest.
Discussion Question:
What do you think of GameStop’s approach when it comes to the sale of
both new and used products? Are
there opportunities for retailers in categories outside of video games
to drive sales with less expensive, previously used products in addition
to new items? What are the repercussions for manufacturers and new product
pricing?
BrainTrust
Recent Discussions
Discussion Questions
Poll
There is no controversy here. BMW, Mercedes and Lexus have sent the “used car salesman” the way of Richard Nixon. Computers are refurbished. Videos are rented. There various trading sites on the internet. GameStop not only provides a service for its customers and adds incremental revenue all the way to the bottom line, but most of all keeps its customers’ focused on and loyal to GameStop.
Used product works. However, it is a TOTALLY different business proposition in that the BUY is key, as it is in regular retail, but much of the purchase process (people coming into your store with quality goods) is completely out of your control, and what you pay for those unpredictable walk ins depends on local market factors.
However tough the used product is to get and control, the sales of these items rarely bump into new. The used customer understands that the hottest product just isn’t there yet, so the search is for old favs or, by pure chance, a newer game for a bargain. Totally different decision and visit ladder by the customer.
Used is the way to go though…think how great it’d be if Apple did that.
The only interesting part of this story is that it’s taken so long for someone to think of this. Here in Toronto, a number for games retailers have offered buy-backs for used games for years. Even with a lower retail price, the margins are huge as the amount paid back for the game is often less than 5% of the game’s original value. A friend of mind was offered two dollars for a game he purchased for over 60 dollars just a couple years a go. The game would be resold for at least fifteen. Do the math, these are better margins than for new games.
And during a recession, it’s a great way to keep the till ringing.
Now if only I can get more than 5 bucks for my Colecovision….
Selling used products works well for certain categories like games, music, and movies; the categories that are also profitable to rent. What makes these products work well is that they tend not to wear, are easy to stock, and turn-over fast. If Home Depot were to sell used tools, for example, they’d have issues with quality, shelf space, and slow turn-over. So I just don’t see much momentum beyond GameStop.
I also don’t see much impact on new product pricing. There will always be a group of early adopters that is willing to pay a premium in this area. The next group will wait for sales, and the third group will buy used.
Game Stop’s strategy makes perfect sense, from every angle. Games get boring, so consumers want to sell them fast and Game Stop quickly offers up cash. Win one for the consumer, and one for Game Stop’s inventory supply. Plus, irrespective of the current economy, a lot of ‘wise’ parents would rather buy a used game and save some money on an item that has a limited life expectancy in the home. Finally, the margin for Game Stop is incredible on these used items.
The car business has made a fortune on used cars for years. A lot of other categories work this angle too. Sporting goods (Play it Again Sports), used office furniture, and even clothing (my office is in a rather affluent area and there are at least 5 consignment shops downtown). Look at how eBay and Amazon make a bundle on used items of every description.
There will always be customers looking to sell stuff for cash, customers looking to save money on used items, and retailers ready to make extended margins on the whole thing.
Practical solutions focused on the consumer segment they serve…hmmmm…this is SPOT ON, and totally relevant to the target customer they serve. I don’t think they have to reduce prices on new games, because new and cool drives this consumer…who they are is sometimes very linked to what they have that’s new and cool, regardless of price. I have seen 100 of these guys in my house since my 19 year old son was about twelve. Game budgets trump books, food, dates, you name it!
In New England, Newbury Comics has been able to survive the contraction in the music and video business with used product (as well as building businesses in other ancillary categories). My sense is that any given time used product in both CDs and DVDs may make up as much as 35-40% of their stock.
There’s no question that this product impacts the sales of new product, and keeps a lid on the prices of new product. But in these categories, GameStop and Newbury Comics are merely mining the retail opportunities in used products that are clearly evident on eBay and Amazon Marketplace.
In the face of a culture that has grown increasingly disposable, retailers incorporating the resale of used items is a brilliant strategy. Not only are you recycling product, saving resources, reducing trash…the margins are usually stronger on used items.
GameStop’s model does have its detractors (and not just among game makers). Some gamers take issue with GameStop’s pricing on used games; after all, they know the profit margins as well, and on the chain’s practices around packaging removal and the resulting barriers to gift-giving. I do think that the current economic climate has helped GameStop overcome the grousing and mitigate yet another obstacle; the fact that moms and casual gamers traditionally haven’t felt comfortable purchasing from their stores. Price is a powerful lure!
There is a huge opportunity here for combining the virtual reach of eBay with the physical presence of brick and mortar retailers. The biggest concern would be the fear of cannibalizing the sale of new products. One easy way to avoid this would be to limit the product categories. Supermarkets could offer an eBay consignment area for clothing, furniture, etc. Buyers would be able to shop the area online, maybe even reserve items. The shop would offer photography and display services to sellers so they could offer their items in the best possible view. It would also screen items for general condition, offer pickup and delivery service, and provide shipping services for items that are bought unseen.
It’s no coincidence that the same folks who brought you GameStop also brought you Barnes & Noble College Bookstores (not part of the Barnes & Noble public company) and a huge used textbook wholesaler, MBS Textbook. New college textbooks aren’t profitable for bookstores because the margins are terrible. The profits are in the used books and the clothing. Same with video games.
More Discussions
How Much Untapped Opportunity Remains in Cruise Retail?
Are brands and retailers missing out on an opportunity on cruise ships?Will Amazon Prime Members Pay for 1-Hour and 3-Hour Delivery?
Is it likely that Amazon customers will shell out extra for ultra-fast delivery?Is Build-a-Bear a Strong Enough Brand To Find Success at Walmart, Despite a More Modest Experience?
Will the Build-a-Bear partnership with Walmart produce the desired results?
There is no controversy here. BMW, Mercedes and Lexus have sent the “used car salesman” the way of Richard Nixon. Computers are refurbished. Videos are rented. There various trading sites on the internet. GameStop not only provides a service for its customers and adds incremental revenue all the way to the bottom line, but most of all keeps its customers’ focused on and loyal to GameStop.
Used product works. However, it is a TOTALLY different business proposition in that the BUY is key, as it is in regular retail, but much of the purchase process (people coming into your store with quality goods) is completely out of your control, and what you pay for those unpredictable walk ins depends on local market factors.
However tough the used product is to get and control, the sales of these items rarely bump into new. The used customer understands that the hottest product just isn’t there yet, so the search is for old favs or, by pure chance, a newer game for a bargain. Totally different decision and visit ladder by the customer.
Used is the way to go though…think how great it’d be if Apple did that.
The only interesting part of this story is that it’s taken so long for someone to think of this. Here in Toronto, a number for games retailers have offered buy-backs for used games for years. Even with a lower retail price, the margins are huge as the amount paid back for the game is often less than 5% of the game’s original value. A friend of mind was offered two dollars for a game he purchased for over 60 dollars just a couple years a go. The game would be resold for at least fifteen. Do the math, these are better margins than for new games.
And during a recession, it’s a great way to keep the till ringing.
Now if only I can get more than 5 bucks for my Colecovision….
Selling used products works well for certain categories like games, music, and movies; the categories that are also profitable to rent. What makes these products work well is that they tend not to wear, are easy to stock, and turn-over fast. If Home Depot were to sell used tools, for example, they’d have issues with quality, shelf space, and slow turn-over. So I just don’t see much momentum beyond GameStop.
I also don’t see much impact on new product pricing. There will always be a group of early adopters that is willing to pay a premium in this area. The next group will wait for sales, and the third group will buy used.
Game Stop’s strategy makes perfect sense, from every angle. Games get boring, so consumers want to sell them fast and Game Stop quickly offers up cash. Win one for the consumer, and one for Game Stop’s inventory supply. Plus, irrespective of the current economy, a lot of ‘wise’ parents would rather buy a used game and save some money on an item that has a limited life expectancy in the home. Finally, the margin for Game Stop is incredible on these used items.
The car business has made a fortune on used cars for years. A lot of other categories work this angle too. Sporting goods (Play it Again Sports), used office furniture, and even clothing (my office is in a rather affluent area and there are at least 5 consignment shops downtown). Look at how eBay and Amazon make a bundle on used items of every description.
There will always be customers looking to sell stuff for cash, customers looking to save money on used items, and retailers ready to make extended margins on the whole thing.
Practical solutions focused on the consumer segment they serve…hmmmm…this is SPOT ON, and totally relevant to the target customer they serve. I don’t think they have to reduce prices on new games, because new and cool drives this consumer…who they are is sometimes very linked to what they have that’s new and cool, regardless of price. I have seen 100 of these guys in my house since my 19 year old son was about twelve. Game budgets trump books, food, dates, you name it!
In New England, Newbury Comics has been able to survive the contraction in the music and video business with used product (as well as building businesses in other ancillary categories). My sense is that any given time used product in both CDs and DVDs may make up as much as 35-40% of their stock.
There’s no question that this product impacts the sales of new product, and keeps a lid on the prices of new product. But in these categories, GameStop and Newbury Comics are merely mining the retail opportunities in used products that are clearly evident on eBay and Amazon Marketplace.
In the face of a culture that has grown increasingly disposable, retailers incorporating the resale of used items is a brilliant strategy. Not only are you recycling product, saving resources, reducing trash…the margins are usually stronger on used items.
GameStop’s model does have its detractors (and not just among game makers). Some gamers take issue with GameStop’s pricing on used games; after all, they know the profit margins as well, and on the chain’s practices around packaging removal and the resulting barriers to gift-giving. I do think that the current economic climate has helped GameStop overcome the grousing and mitigate yet another obstacle; the fact that moms and casual gamers traditionally haven’t felt comfortable purchasing from their stores. Price is a powerful lure!
There is a huge opportunity here for combining the virtual reach of eBay with the physical presence of brick and mortar retailers. The biggest concern would be the fear of cannibalizing the sale of new products. One easy way to avoid this would be to limit the product categories. Supermarkets could offer an eBay consignment area for clothing, furniture, etc. Buyers would be able to shop the area online, maybe even reserve items. The shop would offer photography and display services to sellers so they could offer their items in the best possible view. It would also screen items for general condition, offer pickup and delivery service, and provide shipping services for items that are bought unseen.
It’s no coincidence that the same folks who brought you GameStop also brought you Barnes & Noble College Bookstores (not part of the Barnes & Noble public company) and a huge used textbook wholesaler, MBS Textbook. New college textbooks aren’t profitable for bookstores because the margins are terrible. The profits are in the used books and the clothing. Same with video games.