Trade-in Places

GAME GUIDE"S VIEW
Chris Ratcliff – Editor, The Game Guide

"Depending on who you are or what you do in the video games industry, it is either theft or an essential business practice; morally wrong or an operational necessity. Since 1993 I have either been vilified or praised for editing and producing the Game Guide, which offers amongst many of its features, a guide of used prices for independents on all current console games.

"Whether the trade in used games is good or bad, it is academic when you are a struggling business trying to make a living as a video games retailer. To be fair, it has not always been difficult to make a good living and in the ‘90s it was fairly easy to open a shop and start trading in games and make very good money. In fact, just about every specialist independent store started their first day dealing in only used games, or a combination of new and used – a strategy that has built some large and successful businesses.

"Ten years later and the business is just that much harder and from a peak of thousands of game, video and corner shops dealing in games, we now have an independent sector measured in hundreds of stores. High Street discounting and the internet have taken their toll and those that were unable to re-invest in their businesses, or just didn’t have the business acumen to adjust and survive, went to the wall.

"On today’s streets I don’t think there is a single specialist game store that isn’t trading in pre-owned games and from national chains to the humble market stall, second-hand games are an essential element of the business that encourages repeat trade and customer loyalty.

"Letter writers to MCV often complain about the supermarkets selling new releases at below the cost price, which has the knock-on effect of making the independents reduce their day one stock holding and then making up the loss when it is traded in at a later date. Whilst developers and some publishers complain that they receive no additional ‘royalty’ from the second-hand market, they do benefit from all the games that are sold at close to cost price that has kept the street prices of games artificially low and therefore increased sales.

"In 2007 top new releases do not retail for 49.99, but more realistically at 39.99 or even 34.99 in some cases, a price that independents cannot match without making a loss. No business can survive by selling its core products at a loss or by visibly selling them at 10 more than the price advertised every day on TV and in the newspapers.

"As an example, the standard trade price for a particular current release is 33.19. Add VAT to that and there is less than a 1 profit to be had. But the same title can earn a retailer anything from 9 to 12 in a second-hand transaction, with the advantage that the VAT liability is only on the margin between the used buy price and the used selling price.

"Without the pre-owned market, I doubt the industry would have become this far advanced in such a relatively short time; without it the indie sector would be all but gone and with them the distribution chain that relies on their business.

"If second-hand games keep a retailer in business, it follows that he remains part of the engine that drives the need for the public to buy games and embrace new consoles and formats."

THE ANALYST
James Flower – Analyst, Verdict Research

"Pre-owned accounts for around 15 per cent of GAME’s business; this figure is a little higher for Gamestation. During 2007 GAME says growth in pre-owned has been in line with the rest of the business.

"Offering trade-in definitely drives footfall to GAME and Gamestation stores and provides differentiation from non-specialist High Street rivals. It is also a higher margin operation than ‘new’ software. It probably encourages core gamers to complete a game quickly in order to receive the maximum trade-in value, too. For these reasons it is seen by GAME as a crucial and integral part of the business.

"To provide the service, you need to invest in software/stock management systems. It is also easier for a specialist to offer the service in terms of logistics and staffing – thinking along the lines of longer queues and storage of product. I Feel sure HMV and Virgin has considered it due to the margin opportunity, but for these reasons have not introduced it.

"People do return to watched DVDs – however infrequently. But a completed game is seldom returned to – unless it has awesome two-player functionality. Games also become dated quickly either by new releases, or re-releases like FIFA or PES.

"Indies would definitely find things tougher, if action was taken on pre-owned. There would still be space in the market for indies, but only those with either strong local brand credentials, often based on customer service and product knowledge."

THE DEVELOPER
Martyn Brown – Co-Founder, Team 17

"I think this particular subject has been the thorn in the side of many independent developers, particularly those with a known IP, who obviously only generally get one nibble (and quite often just a quick sniff!) of the cake – whereas some retailers are enjoying something of a feast and having multiple gobbles.

"Given that the issue seriously affects publishers, as well as independent developers, you would anticipate more pressure coming from that angle and developers benefiting in turn as part of their contractual arrangements.

"Obviously, a lot of indie developers have cast a keen eye on the growing possibility to publish and distribute digitally, which all but eradicates traditional distribution, retailing, the second-hand market and even marketing to produce vastly improved profits for publishers and developers, generally with a lower consumer price."