A Look Into a Unique Retail Model: GameStop

  • Too often in this industry we get so focused on Food, Drug, Mass and Club channels that we forget that there are other retail models out there, which we can learn from and gain inspiration.

    I have to admit that I have passed by GameStop from time to time at my local shopping centre and I have only wondered in during the Nintendo Wii craze to see if they had any consoles available.

    Many of you have likely spent some time at GameStop either as a gamer yourself or as the parent of a gamer. The fact that the video game industry is bigger than Hollywood from a revenue perspective; almost guarantees that I am the exception to the rule.

    GameStop’s business model is centered on the video game consoles and video game software. GameStop also offers the ability for customers to bring back used games in exchange for store credit, creating a simple but effective loyalty management scheme.

    The  business operates 325 stores in Canada under both the GameStop and EB Games banners.

    I came across this Profit Mix analysis that was part of GameStop’s annual reporting and was surprised at the low-low margins provided by selling video game consoles which are just over 6% for the past year.

    Margins are relatively strong for new video game software at 21%; but what really blew me away was the money being made on used video game software.

    Not only do gross margins hover around 48% on used software – this category of goods accounts for almost half (46%) of total gross margin dollars for the company!

    Game consoles are the true “loss leader” while new game software acts as the “excitement generator” / “traffic builder”. Used game software is the “profit generator” / “loyalty builder”.

    A few interesting insights from some top-line numbers. I know I will be taking a closer look at GameStop the next time I am at the mall.

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