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Journal RogueyWon's Journal: On the woes of UK games retail 3

Slashdot is, of course, a site with an international - but heavily US-slanted - readership. Chances are, then, that most slashdot readers haven't picked up that the UK's biggest high street video games retailer - the Game group (which owns the Game and Gamestation) brands - is in dire financial straits.

There have been reports for more than 6 months that the company was in trouble, but things really started to crystalise in January. The company had its stock-insurance withdrawn, meaning that it had to either buy stock on a cash-up-front basis, or reach credit agreements with publishers on a bespoke basis. Within a few weeks of this happening, Game (which I will use from here on as a shorthand for the entire group) began to announce that it wouldn't be able to announce certain new releases.

The first couple were relatively minor; Tekken 3DS was probably the most high profile victim. However, as we moved further into February, higher profile titles started to vanish from the line-up, such as the long-awaited European release of Mistwalker's Wii RPG The Last Story. When the Vita launched in late February, Game wasn't able to stock any of the Ubisoft launch-titles (though it has since reached a deal with Ubisoft that allows it to do so). Of the five Ubisoft launch titles, three were basically shovelware junk, but the other two, Lumines and Rayman Origins, were widely considered to sit alongside Uncharted and Wipeout as the best full-priced games in the launch lineup.

Things got much worse at the very end of February. Over the course of a fairly apocalyptic few hours, Game was forced to announce that it wouldn't be stocking Mass Effect 3, any EA March releases other than SSX, and Mario Party 9. The company was working to reach agreements with EA and Nintendo for future games, but couldn't convincingly promise that it would be able to carry them.

This had the air of catastrophe; Mass Effect 3 is probably the biggest game-launch of the first quarter of 2012. Mario Party 9 was another release that could have been expected to shift huge numbers. Although less remarked on by the gaming press (particularly Eurogamer, who have followed the situation closely), the other EA titles Game wouldn't be carrying included a number of big-franchise casual series, such as FIFA and the Sims, which normally turn massive profits without actually making waves in the more hardcore gaming community.

Some have speculated that this represents publishers "punishing" Game for its pre-owned policies. I disagree; publishers know that not having their titles carried by the UK's biggest specialist high street retailer will hurt. Tekken 3DS managed absolutely miserable sales figures after Game were forced to drop it (it wasn't a "big" enough release for the supermarkets to really push it). Rather, I suspect that publishers have been advised by their beancounters that the certain losses that will accrue from not having their titles carried by Game are outweighed by the probability/impact balance of the risk of loss from extending credit to Game. And that, as hardly needs to be said, is a very scary thought.

Now, this isn't to say that Game is doomed. It might still manage to avoid going into administration. Or it might go into administration, but emerge after a relatively short period as a going concern in a recognisable form, perhaps with fewer branches and a greater focus on online-sales, but still more or less the same company. Other recognised UK high street chains (such as Whittards, the tea/coffee specialist retailer) have done just that. However, my instinct is that the company is now locked into a death spiral. This is partly due to the vicious circle created by the events of the last 6 weeks or so; their failure to stock many key titles will have sent customers elsewhere and even if stock flows can be resumed, some of those customers are likely lost for good. But it's also due to a variety of broader factors which have, I suspect, sounded the death-knell for specialist high street games retail in the UK.

I thought I'd set down some of my thoughts on how this has happened. This has already been a fairly lengthy post and it's going to get a lot lengthier before it's done - not least because I'm going to move next onto some ancient history.

Why Game was a good thing

Prior to around 1993 or so, games retail in the UK was a pretty hit-and-miss business. Most games shops were small, independent busineses. Now, while people tend to regard that as "a good thing" on an emotional level, in reality, it wasn't always great. I remember all too well just how grim many of these stores were. Dingy, badly lit, often badly stocked and usually full of malodorous men in grim anoraks, they were usually tucked away in forgotten corners of shopping centres, or in unlovely reaches of industrial estates. You'd find the odd one that was better than the rest - but the stores in general always tended to have mayfly-like lifespans, so once you'd found a hidden gem, it would normally close down within a few weeks anyway. These were stores for an industry which still considered itself as not quite fit for discussion in polite society.

You'd get some games stocked in the supermarkets - but it would again be erratic. As most of them didn't understand the industry at all, pricing policies would range from the ludicrous to the non-existant. I remember finding some real bargains, such as new "full priced" releases selling for ten pounds. But I also remember seeing budget games with an RRP of fifteen pounds on the shelves for three times that.

Finally, a large portion of games sales were still handled via mail-order stores. These weren't like the modern, efficient service provided by Amazon. Rather, you'd skim the pages of a gaming magazine; Zzzap 64 or PC Format or whatnot and you'd find a number of mail order businesses setting out their catalogues in whole-page adverts. You'd cut out the attached order form and post it, along with a cheque, to some mysterious PO Box, hoping that DaveZ GameZ Barn or whatever it was called was actually a legitimate business and that if it was, it wouldn't go bust before shipping your game. If everything went to plan, it'd take a couple of days for your form to reach them, a couple of days for the cheque to clear, and then you'd have to allow the inevitable "28 days for delivery".

And then, around 1993 or so, the direct predecessors to Game started to show up. Suddenly, there were these clean, brightly lit and well-stocked shops, offering a good range of titles across all platforms. And they weren't hidden out of sight; they were right on the high street, or right in the middle of the shopping centre. Their prices were perhaps towards the higher end of the scale - or at least, the fact that they actually knew the industry meant that you didn't get accidentally-underpriced bargains - but if you wanted a game released within the last 2 years, then you'd be able to walk in and be pretty confident you'd be able to pick it up. It was a revolution - and for many years it worked very well.

However, the model which revolutionised the industry in the early/mid 90s hasn't been static since then and it's undeniable that it's in trouble now. Game is probably facing insolvency within the next few weeks. Most of its old competitors have been bought out by Game itself at some point. And HMV, which is the closest approximation to a direct competitor (being a music/movies/games retailer) is also in poor financial health.

So what's gone wrong?

The pricing model for games is wrong

Here's my most controversial theory; many games, particularly major releases, are being sold too cheap. Back in the early, mid 90s, I would expect to spend between 40 and 50 pounds on a new PC game. Console games could be even more expensive (though as I didn't have a console at the time, that was firmly Somebody Else's Problem). We've had a lot of inflation since then. We've also seen the cost of developing games shoot through the roof. X-Wing, Gunship 2000 and Wing Commander were fantastic games, but even though at the time they represented the cutting edge of technology, the number of assets involved in their creation was tiny compared to even relatively minor modern game releases.

Now, it's a bigger market these days and there are more copies being sold, which means that prices can be stretched a bit tighter. However, I still suspect that there is just not enough money coming into the industry on the back of each "full sized" game sold. Wherever I look in the industry, there doesn't actually seem to be all that much profit going around; at least not consistently. Nintendo and Sony are losing money at a terrifying rate. Even publishing behemoths like EA, with mega-franchises at their fingertips, seem to be putting out losses for as many years as they do profits. In this environment, there's very little margin at all available to the front-line retailer. It's easy to blame high-street stores for their emphasis on pre-owned (and in a minute, I'm going to do just that), but margins on new-game sales are so think that it's difficult to see how they meet rent and staff costs on the basis of them.

I believe that when the next console generation hits, it will be time for publishers to have a quiet but firm word with customers and say "The price-point for a new full-sized game will now be between 50 and 60 pounds."

This has to come with a trade-off, of course. First, the industry needs to realise that it needs to be a lot more honest in recognising what does and doesn't count as a "full sized" game. If you think that you'll struggle to sell your four-hour campaign and a handful of multiplayer maps for fifty pounds or more, then perhaps that tells you that you don't actually deserve the cash with the game you have. So you can either put more effort in, or accept a lower price-point. I've got two real targets in particular here; the lazy "spectacle fpses" and Nintendo first party games - both of which tend to represent spectacularly bad value for money in a price-per-hour sense (Nintendo handheld titles in particular - yes Starfox 3d, I so very much mean you).

Sony have taken some steps towards addressing this issue with the pricing of Vita games, where we have a good range of prices between five and forty pounds for the launch titles. I'm not convinced that they've got all of their individual decisions right (Lumines feels over-priced, in particular), but the overall range they've settled on feels appropriate for the quality on offer. The games at the top end of the spectrum - let's take Uncharted - are almost-but-not-quite PS3 quality. On the basis of setting a precedent for future home-console prices in the 50 to 60 pound range, the range feels more or less right for a handheld platform. The question, however, is whether there is enough margin allowed within the pricing structure for new games sales to actually be worth a damn for the high street retailer. Sony's plan B is clear - all Vita games can be purchased - from the day they are released onwards - from the PSN for download.

Pre-owned games are a self-defeating business

I said above that high street retailers like Game can't be blamed for pursuing pre-owned sales. However, what they can be blamed for is how they did it - and the sheer degree of emphasis they put on it. The norm in Game branches these days is for around 2/3rds of the floor/shelf space to be given over to pre-owned. Gamestation stores are even worse. This has two problems; first, it annoys "premium" customers (on which more later) and second, it's based on an overly optimistic assessment of how the used games trade works.

Thing is, in theory, pre-owned game sales are an absolute gold-mine for these stores. They pay little Johnny Teenager 10 quid (in store credit) for his copy of FIFA and sell it on for 30. Cue massive profit on each unit sold - far more than for a "new" copy of FIFA selling for 35 pounds. When the system works like this, then the store is laughing all the way to the bank.

But consoles come in cycles. And these stores' trade in policies require them to accept any game for current generation hardware; they may give a pittance for it, but they have to take it. There games for current generation console hardware that are more than five years old. People are going to be trading these games in; but given the way the game industry works, it's very unlikely they'll ever be bought by another customer.

Let's take the alternative case study here. Little Johnny Teenager comes in with his old copy of Forza Motorsport 2 - from the early days of the Xbox 360. He gets... let's say... 4 pounds of store-credit for it on trade-in. He immediately uses this to off-set his purchase of a new copy of Forza Motorsport 4, which sells for 40 pounds.

What's happened here? From Johnny's point of view, he's got rid of a game he was never going to play again - because the game he's just bought is a direct replacement for it. Game now have a copy of an obsolete title, which they'll struggle to sell given it has not one but two direct successors on current generation hardware (as is the case for many franchises now). So Game have lost the profit on the transaction overall - in fact, they may even have made a loss on it.

The used game business gets brutal late in the console cycle. And this time around, the late-cycle is likely to last a long, long time. Worse, people are more likely to trade in games they don't have a strong affection for. This means that having a big rack of used-games is unlikely to act as a substitute for having a wide and interesting back catalogue. You just end up with an awfully large number of copies of the same few sports and casual shooter titles (which is what you will currently see in every Game store in the UK).

It didn't help that this time around, you had publishers actively attacking the used-games market, via online passes and the like. This is ultimately a destructive set of behaviours that will harm the entire industry; but it will kill high street retailers before it kills the publishers.

Wrong store layout, wrong titles

Now this one can be chalked up squarely as Game's own fault. They are losing market share to two major sources, in general; Amazon and the other delivery-firms on the one hand, and supermarkets on the other. Each of those rivals has a big advantage over a high street specialist retailer, though the advantage is different in each case.

The delivery-firms do not have the same worries around shelf-space that Game has. They're warehouse-based companies who can store a lot of product very efficiently. And if they don't have a title in stock, they have a network of affiliated suppliers who can pick up the slack. They're also not paying rent on stores, or costs for front-line staff, so they can be very competitive on price. I'd include direct download sales in this category, but it's only really on PC that these are significant. So far (the Vita may start to change this).

The supermarkets have very severe shelf-space concerns - gaming is, after all, a tiny part of their business. Smaller stores, if they sell games at all, may have a single rack. What they do, however, have is the power that comes with being massive businesses with incredibly deep pockets. They can buy stock in huge quantities and sell it very cheap. They can and do run major titles as loss-leaders to get people in the stores. They're only going to focus on a few major titles, but on those titles, they will out-compete any other bricks and mortar business on price.

So where does that leave the specialist high street retailer? They're always going to be a bit more expensive, but in theory, their advantage is that they can offer a wide range of titles, available to buy there and then, with no wait for delivery. But Game have done everything in their power not to exploit this advantage.

Finding a game more than 6 months old that isn't a pre-owned FIFA or Call of Duty in a branch of Game is a rare event. Shelf-space is used so as to maximise the visual prominence of a small number of titles; the exact same titles that the supermarkets are carrying at vastly lower prices. Indeed, the range of games carried is barely wider than that of the supermarkets; if indeed it's wider at all. A few years ago, Game shifted from a spine-out shelving model for most of their games to a face-out model. They also abandoned the A-Z section for a "Top 20 and a few hangers on" model. This is a vastly inefficient use of space. It maximises Game's weaknesses vs the other retail models and minimises their advantages. Most of the bookseller chains in the UK did the same thing; and most of them have now gone bust. Waterstones, the sole specialist survivor, have begun to shift back towards a spine-out display model with a wider range of stock - I'm guessing this is a survival strategy.

On balance, Game was never going to be able to get out of giving a degree of emphasis to the latest big-name AAA title - nor would it want to. But it needed to keep these mega-games confined to a smaller section of the store, accepting that they were always going to play second fiddle to Amazon and the supermarkets in this area. They needed to do more to emphasise their ability to supply smaller, niche titles and to grow public interest in games outside of the well-known AAA bracket.

If you walked into a specialist music store and found nothing but Westlife and N-Dubz CDs, you'd walk right out again. But that's basically what Game did within their sector.

Going for the wrong customers

When you're deciding which customers you want to attrack, it kind of helps to make sure that they do actually have money to spend. Survey data consistently shows that most games today are purchased by relatively affluent adults in the 25-40 age. You'd have thought that Game would go all-out to target this market. Instead, the emphasis remained firmly upon teenagers and adults at the "lowest common denominator" end of the spectrum.

As recently as five years ago, most branches of Game had at least one member of staff who actually knew games, knew the industry and knew what customers were likely to want. They'd be able to offer customers intelligent advice - whether they were a parent buying a game for a child, or an enthusiast looking for something new in a particular genre. These days, all you get from the staff is a memorised pitch for why you should buy the latest FIFA. I am not a football (soccer) fan. I don't look like one. In fact, I have a burning hatred for the stupid game that threatens to consume me with an all-devouring flame every time it is so much as mentioned. But every time I go into Game, one of the staff tries to sell me FIFA.

I'm not necessarily blaming the staff for this. It might be that Game is recruiting from lower down the food chain than it used to. But it might not. If I had to guess, I would say that their policy these days is to deprive staff of any degree of discretion in how they deal with customers, instead insisting that they all follow the latest marketing-department mandated script. For anybody who knows games, or who wants something that isn't the latest AAA release, it can make shopping in Game extremely frustrating.

Combined with the emphasis on pre-owned and a general decline in the physical quality (cleanliness, spacing, in a few unfortunate cases, smell) of many of their stores, this has certainly been a tipping point for me a couple of times in deciding that I can wait a few days for an Amazon delivery, rather than going into a store.

I've got money to spend. If you've ready any of my previous journal entries, you'll know I buy a lot of games - I have a well paid job and can afford to. I'll even jump through some of Game's hoops. I don't mind pre-ordering too much (and will generally do it if there's a nice bonus). I may not do the pre-owned thing often, but I've done it on occasion. I can be tempted into impulse purchases. And yet Game seem to want to keep me out of their stores, in favour of kids with the odd bit of pocket money.

Too many stores

Now this one is just stupid. Game spent the early part of the last decade buying up all of the competition. That's not necessarily a bad way of doing business (though it tends not to be good for customers). What is stupid, however, is keeping open each and every one of the stores you buy. The centres of most reasonably sized towns these days have two or three branches of Game/Gamestation, where a single (possibly slightly larger) store would suffice. Manchester's Trafford Centre has two branches so close that you can actually peer out the door of one into the other.

Just... why?

And in conclusion

As I said at the start, Game may survive in more or less its current form. It's looking unlikely, but not impossible. Furthermore, not all of its problems are of its own making; there are some fundamental problems in the industry that would be making for tough times however well the company had been managed. But oh my word it has made some absolute howlers over the last few years.
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On the woes of UK games retail

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  • Down here in Oz the prices already suck. AUD80 for a not so recent game (Super Mario Galaxy 2) - second hand. AUD90 new. In a store (EBGames).

    50 British pounds = 74.7859182 Australian dollars
    80 Australian dollars = 53.4860051 British pounds

    Similarly here in Brisbane CBD there are 3 (three) EBGames stores within 5 minutes walk. Small suburban shopping centre has 2 (as well as a major audio/visual retailer who also sells games) - one of the stores is new.

    I object. Seriously I have vowed not to pay more A

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