Research Analysis for Business
Cordelle Wilson
Ali Boloorian
ECO/561
10/9/2018
Research Analysis for Business
Competitive nature has always been a part of human instinct since the beginning of time. In the 1970’s the very first Atari entertainment game system was invented and later released worldwide to bring videogames to consumers on a global scale. Television gaming systems became a huge success overtime and spread like wildfire with commercials. In today’s society we have popular gaming consoles also known as: Xbox, PlayStation and Nintendo Wii are among the top three systems that has children and adults addicted to the television. The games systems now have high value and price worldwide for merchants. Furthermore, companies like GameStop make such a profit from consumers before and after holidays. “In 2012, GameStop acquired the firm BuyMyTronics, an online electronics re-commerce company and the acquisition has been instrumental in identifying opportunities to expand their device selection and integral to the buy-sell-trade model” (GameStop, 2017).
GameStop Market
GameStop is placed under pressure around Christmas of 2016 because their shares fell to 18.7%. “This reflected a more than 8% drop, to $22.60, not far off its 52-week low, before regaining some ground to recover from lost numbers” (Willoughby, 2017). GameStop doesn’t currently have any real competitors due to the popularity of the stores. On every corner in the US there is a GameStop near shopping centers, malls, grocery stores, fast food restaurants, movie theaters, hotels, and even educational institutions. They used to be in competition with small companies such as Electronics Boutique, Funcoland, EBGames, and Babbages, and now these companies do not stand a chance to compete the GameStop firm. The potential company would have to sustain low fixed rates and high variables in order to maintain operations. A new company would have to be able to do this or match prices and still profit from sales starting out.
Video Game Oligopolistic Market
They would have to have a substantial amount of revenue from the beginning in order to stay afloat until sales took off, hopefully in an upward direction. According to the research provided “oligopolists can preclude the entry of new competitors through preemptive and retaliatory pricing and advertising strategies (McConnell, Brue & Flynn, 2015). Most of the smaller companies have been bought out by them and in worst case scenario filed for bankruptcy. The only companies that might be able to compete with GameStop are local retailers such as: Walmart, Target, and Best Buy. They will match prices of other games but will not trade games or offer a point system to retain more customers. GameStop has new and used to offer discounts on games for the customers to enjoy at an affordable price. Amazon and eBay also have new and used games and they won’t match competitor’s prices when posted online. It would be hard for other organizations to enter this market with GameStop, because the competing retailors with lose money.
Retail Margins
Retailers often recognize and analyze larger gross margins on the sale of used games compared to new games that are trending once released to the public. For example, GameStop reported a gross margin of 46.8% on used games in 2009 (University of Oregon Investment Group, 2010). As you can see from the chart listed below, the gaming market seems to be going down-hill with drastic results (see chart 1), it doesn’t affect GameStop directly since there are no tough competitors who will attempt to match their performance. “In July 2010, GameStop acquired Kongregate, a leading free-to-play social gaming destination. 2010 also saw the launch of GameStop® PowerUp Rewards™, a best-in-class customer loyalty program that now boasts more than 34 million members worldwide” (GameStop, 2017).
(Chart 1)
GameStop has allowed other competitors in the market and stop purchasing the smaller companies before they start off a healthy business. With GameStop controlling most of the market, it allows for others to either start transactions or end their services with them. Although their sales have gone up, consumers can make the decision not purchase from them all together. The best recommendation for selling used games can be sold on sites like eBay, OfferUp, Craig’s List, Amazon, or local pages within Facebook. The chart above shows a downward trend with reflective data pulled from the Federal Reserve regarding Producer Price Index by Industry: Hobby, Toy, and Game Stores: Retailing of Hobby and Craft Goods, Toys, and Games (Including Video Games) (U.S. Bureau of Labor Statistics, 2017). Local retail stores such as GameStop and Pawnshops offer money in exchange for old games but the amount of money in return may be very low in comparison to the current value.
Price Elasticity of Demand
As new gaming consoles are developed and updated every other three years, new games are designed annually to entice consumers to purchase these consoles, and controllers. The prices for each game cartridge or disc can range from $30-$80 per game including taxes. Once the video game is purchased, opened, and played it will immediately lose value once it has been played. Since, GameStop is the only company allowing trades and having a reasonable point system, they also resale their traded games at a high price to bring in more profit. This price usually runs about ten dollars from the price of the game being new when it was first originally purchased. The company also considers the condition and quality of the game before purchasing it from customers, along with the year it was produced. “In the fiscal year ending Jan. 30, 2015, GameStop has reduced its overall retail video game store count by 125 locations but expanded by 553 stores its technology brands segment that sells mobile phones and other electronics globally”, (Gallagher, 2016).
Conclusion
When customers think of fixed cost regarding GameStop, things such as electricity and rent are involved. After a long period spent researching this, there were no responses “The operator of 4,000-plus U.S. video game outlets, 16% of them in malls, is losing in-store customers as a growing number of players download games from the Internet. GameStop’s revenues, which topped out at $9.4 billion in the most recent fiscal year, are expected to bottom out at $8.7 billion in 2018”, (Willoughby, 2017). GameStop should participate in the market of selling games online as digital downloads do increase sales, and brand awareness before and after major holidays. They should also invest more resources into the pre-paid market, selling of their mobile phones and tablets to enhance the customers gaming experience. “GameStop now operates about 1,400 Spring Mobile stores mostly AT&T wireless stores and has become the second largest retailer of AT&T-supported phones and service plans behind only AT&T itself” (Willoughby, 2017). Their massive technology group brings in about 11% of their revenue and 13% of their profit.