Supermarkets weep?

It reads like something from an independent retailer’s fantasy.

With relations between EUK and the publishing community

allegedly beginning to falter

, could supermarkets really end up with no video games stock this Christmas?

One thing’s for sure: Following the credit insurers’ decision to halt cover on games handled by the Woolworths Group, publishers feel ‘exposed’. Some top games companies have even begin purchasing their own product insurance at a premium price – knowingly inviting turbulence into their Christmas cash flow.

This writer has never known a situation as sensitive in the games industry. Publishers won’t deny there’s a problem – on the contrary, they’ve been vocally encouraging us to get the news out in the open.

But, believe us, you’ve got more chance of catching a glimpse of Lara Croft’s cellulite than getting a comment on the record.

‘AN  IMPOSSIBLE  SCENARIO’

Out of respect for our friends in the industry, we won’t name names – but five publishers have now politely (and not so politely) offered MCV a terse no comment” on the subject, alongside two of the major retailers involved with EUK.

Thankfully, some industry types aren’t so reticent. Verdict Research senior retail analyst James Flower thinks that something will have to give soon – as the grocers flat out refuse to miss the Christmas cash windfall.

The scenario of supermarkets being cut off is an impossible one,” he says. By hook or by crook, Zavvi, Asda and Sainsbury’s will get games in – it’s too important a category for them not to. Something will have to give soon.

In the short-term, this situation is making stock hard to come by and will obviously impact grocers, due to the major revenue source games offer. But they won’t let it happen much longer.

I imagine that they’ll either bypass EUK altogether or seek out a way to compromise on just how much responsibility they give them.”

There is, of course, one factor that makes this an issue which goes way beyond the confines of our industry: filthy lucre.

With video games bucking the trend of cautious consumer spending in these credit crunching times, the top dogs at the UK’s biggest businesses are becoming increasingly involved in ensuring they get their slice of the pie. And EUK’s retail partners are no different.

Bosses at Asda have already set up a

‘contingency plan’ to buy direct from 15 entertainment suppliers

. And now one major UK  publisher boss has told MCV:

When it comes to importance to the supermarkets, we’re vital. We probably weren’t on the radar a few years ago, but now we’re bigger than the DVD business by value.

Games may be relatively hard to manage compared to tins of beans, but the category is driving a huge amount of profit for the grocery channel.

Look how competitive the grocers are getting – you saw the price wars story in MCV the other week. It’s going to be a bloodbath before Christmas.

"You don’t do that if it’s not important. This situation will go all the way to the top at the likes of Sainsbury’s and Asda – and we could see loyalty to EUK dropping pretty rapidly.”

EUK is still promising publishers that a bumper Christmas awaits – and that it is in full control. But it’s not only the games industry it has to convince.

Reports are fast arriving that book publishers and music labels – other key customers of EUK – are being forced to seek out their own credit insurance, creating similarly fragile relationships to those with games suppliers.

SOUND  ADVICE?

In music we don’t have a massive specialist like GAME taking up share, so EUK represents around 40 – 50 per cent of the marketplace,” says editor of Music Week Paul Williams.

With that sort of share, you can imagine how important the firm is to the major labels, so this is a huge issue for the biggest companies in our industry. In reality, EUK is completely dominant. There would be hardly any third-party buying options left should retailers drop them.

It’s important to remember that EUK is a fairly good business – it’s actually its owner, Woolworths, that has the big problems, because of issues it faces on the High Street.

It wouldn’t be unprecedented for another retailer like Asda or Sainsbury’s to buy EUK in the same way Tesco bought Handleman earlier this year. And as it’s already owned by a retailer in Woolworths, that wouldn’t necessarily affect EUK’s current relationship with other High Street companies.”

Verdict’s Flower questions whether the likes of Asda or Sainsbury’s have the financial muscle to pull off the move:

I would question whether Asda or Sainsbury’s would consider a non-core acquisition at this time,” he says.

In terms of non-food, games is performing amazingly well, but other non-food categories are declining or showing very slow growth. With price inflation on food, a buyout may not be a priority for Asda or Sainsbury’s right now.”

It’s difficult not to feel a mite sorry for EUK: a company that has been placed in an impossible position through no fault of its own. It’s the financial standing of Woolworths that has determined its fate – something that will at least keep EUK an attractive target for a quick buyout.

It’s an evens guess whether a White Knight will make a bid – providing a speedy denouement to the saga and helping avoid the accusations of betrayal that publishers bypassing EUK will doubtlessly create.

What is more certain is the legacy this headache-riddled episode will leave: Most notably, the unshakeable question of whether entertainment retailers should have encouraged a third-party buyer to seize so much power – or gambled their fate on the success of one of their oldest High Street rivals.