Q17 Q17 Q17
GameStop Plays to Win The Super Mario Bros. and Iron Man games fly off the shelves when GameStop pulls out all the stops in its video game marketing. Based in Grapevine, Texas, GameStop rings up $9 billion in annual sales as a specialty retailer of new and used video game hardware and software. Its 6,600 stores in 17 countries stock popular video game consoles and accessories from Sony, Microsoft, and Nintendo, plus thousands of games. Each 1,400-square-foot store is packed with an ever-changing merchandise assortment, some items purchased new from manufacturers or distributors and some taken as trade-ins from customers.
Founded in 1996, Game- Stop went through several names and mergers as it refined its retailing model and kicked off an aggressive expansion strategy that continues today, with the opening of 400 new stores every year. Its network of brick-and- mortar stores is complemented by an e-commerce site where customers can click to browse inventory, buy games and gear to be shipped to their homes, download free or paid games, and register for online game tournaments.
Highly Seasonal, Highly Competitive
GameStop's business is both highly seasonal and highly competitive. Approximately 40 percent of its sales are made during the last three months of the year. In the United States, it must contend with the marketing muscle of giant discounters, such as Walmart and Target, toy stores like Toys"R"Us, and national electronics chains like Best Buy, as well as specialty stores, catalog merchants, and online retailers of all sizes. Outside the United States, GameStop also competes with multinational hypermarket retailers like Carrefour.
The company targets three customer segments: enthusiasts, casual gamers, and seasonal gift givers. In addition, some customers are value-oriented and prefer to buy used products, including older consoles and games that are no longer available as new items.
Used Games for Sale
One of GameStop's competitive advantages is its trade-in policy. Customers can bring in their games, consoles, and accessories and receive a store credit toward the purchase of other merchandise. Trade-ins must be in working condition and must include the original box and the instruction manual. GameStop's refurbishment centers in North America, Australia, and Europe test all trade-ins, fi x defects when necessary, repackage the products, and ship them to stores for retail sale. Not only do trade-ins stimulate store traffic, but sales of used products result in a higher gross margin than sales of new products. Used games account for about one-fourth of GameStop's revenue and as much as 45 percent of its profits. The company recently began allowing trade-ins of non-game mobile devices, such as iPads and iPods, another way to bring customers into its stores.
The profit potential in used games has drawn competition for GameStop. The convenience store chain 7-Eleven has entered this market, selling used games through a partnership with the wholesaler Game Trading Technologies. Toys"R"Us also offers some used games and consoles and invites trade-ins, in person and by mail. Amazon. com allows game trade-ins by mail and serves as a virtual storefront for used video games sold by consumers and businesses, in addition to retailing new games and consoles.
The Right Merchandise in the Right Location
GameStop chooses store locations based on a number of factors, including demographic trends, visibility to pedestrians and vehicular traffic, and parking availability. It prefers to put stores in power shopping centers and malls that draw a high volume of customers. It also checks out the competitive situation in each area before making a final decision. Store atmospherics are designed to appeal to game players and include equipment where customers can sample games and watch videos of game clips before making a purchase.
Over the years, GameStop has developed a sophisticated information system for analyzing historic trends in store sales so it can project future demand for current and new products. This is especially important for satisfying the needs of enthusiasts, who may buy elsewhere if GameStop doesn't have the latest game or console in stock immediately after its release.
To help predict demand, GameStop invites customers to preorder new items for pick up at their local stores on or after the release date. It also tracks customer requests and monitors media coverage in advance of new-product introductions. During a busy period of new-game introductions, GameStop may have more than 1,000 new games in stock and ready for purchase. Because new games and equipment can make older products obsolete, GameStop has negotiated deals with its primary suppliers to allow returns in such instances.
Thanks to its marketing information system, GameStop knows exactly which products sell in each of its stores and what inventory is available in its distribution centers. The system automatically reorders merchandise as it sells and schedules twice-weekly shipments to replenish stock, so store shelves are never empty. On the other hand, daily analysis of inventory positions and frequent restocking allows GameStop to tailor the merchandise mix for each store while avoiding the expense of carrying too much safety stock in each store.
For high efficiency, GameStop supplies replenishment stock to U.S. stores from its 400,000-square-foot distribution center in Grapevine, Texas. Its 260,000-square-foot center in Louisville, Kentucky, is dedicated to receiving, sorting, and shipping hot new games and consoles to its stores nationwide. The company uses centrally located distribution centers to restock stores in other countries.
The Digital Dilemma
Despite GameStop's considerable investment in brick-and-mortar retailing, it sees great value in maintaining a strong online retailing presence. Game enthusiasts tend to be heavy Internet users, and GameStop wants to be where they like to be. Its website has a feature of interest to all of the targeted segments: a "wish list" where enthusiasts and casual gamers can itemize the products they would most like to receive (from gift-givers). GameStop also offers a weekly e-newsletter with exclusive discounts and advance notice of sales, tournaments, midnight openings for new releases, and other events.
Game consoles are increasingly Internet-ready and many players already play games on their personal computers, so digital game downloads are a must for GameStop. Its e-commerce site sells downloadable versions of popular games and offers hundreds of free games, some downloadable and some that play in the user's Web browser. The company tested a Facebook storefront, thinking it would appeal to its 4 million "fans," but quickly closed the "store" down because online buying is so convenient on the GameStop website.
Digital downloads pose a dilemma. GameStop's executives have been monitoring the situation in the music industry, where downloads have cut into retailers' sales of actual CDs. However, digital music fi les are relatively small, compared with digital game fi les. This means buyers would have to have a very speedy broadband Internet connection to get a game downloaded in a reasonable length of time. Still, GameStop recently began accepting in-store preorders for new digitally downloadable games, accepting trade-ins as credit toward the purchase price. "This is a great illustration of how the digital distribution model and in-store experience really complement one another," explains a GameStop official.
How does GameStop create time, place, possession, and form utility for customers who want to buy used video games?