Passed Around

Publishers hate the second-hand market, but it may be the only thing propping up high street retailers.

Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.

More than a few eyebrows will be raised at the enthusiasm with which US retail giant Best Buy is plunging into the UK games retail market, with the company keen to place games at the heart of its offering as it opens its first stores over here.

The timing couldn't be more peculiar. After easily a decade of speculation about when America's major chains would begin to exploit the opportunities on these shores, Best Buy is turning up after a torrid couple of years which many commentators see as proof of an irreversible decline in high-street retail.

It's tough to disagree with that assessment. Specialist retailers in the UK have been squeezed from all sides in recent months. The core gaming audience, more tech-savvy than other market segments, have flocked in increasing number to online stores like Amazon and Play.com. The casual audience attracted by the Wii is more likely to shop at a mainstream retail outlet such as catalogue retailer Argos than to walk into a specialist store.

Even the launch of what should have been a pillar of strength for specialist retail last Christmas, in the form of Modern Warfare 2, was a bitter pill, with supermarket chains muscling in and discounting heavily - resulting in queues of gamers forming outside Tesco and Sainsbury's supermarkets rather than outside specialist stores.

To cap it all off, sales of boxed games have levelled off and are even declining in some quarters. Publicly, publishers and retailers alike dismiss this as a symptom of recession; privately, many worry that the recession has masked a more fundamental shift in consumer behaviour, which would mean that the meteoric growth in boxed sales seen over the past two decades will not return when the economy recovers.

Instead, gamers' money and, more importantly, their time, is being absorbed by new platforms with new business models - business models which don't feature retail anywhere on the value chain.

In the face of such odds, the UK's own specialist retail behemoth, GAME, has been forced to start closing down stores and has lost its long-serving CEO. In part, the store closures are logical - aggressive acquisitions and expansions have left GAME in the odd position of having multiple stores in many UK town centres.

It's still a stark reminder of how things have changed - less than a decade ago, GAME was easily the most powerful company in the UK industry, capable of dictating its own terms to publishers and holding the success or failure of even high-budget titles in its hands.

What, then, possesses Best Buy to throw its lot into this market - a sector where even the market leader is being forced to downsize?

There are two key reasons. The first, of course, is the corporate drive for expansion, driven by the stock market. Corporations cannot stay still, but must instead deliver growth on a quarter by quarter, year by year basis. If that means expanding into a market as unappealing as games retail in the UK, then so be it - however illogical that may seem on the surface.

The second reason is revealed fairly clearly by Best Buy's statements this week. It doesn't just want a slice of the UK games market - which, of course, the company would perceive simply as part of a wider home entertainment offering. It also wants a slice of the second-hand games market.

If high-street retail of games is facing tough times, then the sliver lining - from the point of view of the retailers, at least - is the second-hand games business. The pre-owned market is booming, delivering huge turnover - every penny of which is profit.

Pre-owned games have become more and more prominent in specialist stores, and even non-specialists are getting in on the act. That's unsurprising. Many customers admit to treating pre-owned games as a glorified rental service, which means that the same game can pass through a retailer's shelves many times, making an order of magnitude more profit for the store as a second-hand title than it did when it was sold brand new.

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