Thursday, February 22, 2018
Business

Walmart takes on GameStop with video game trade-in program

NEW YORK — Walmart plans to start buying used video games from shoppers at stores in a move that goes after the bread-and-butter business of GameStop.

Wal-Mart Stores plans to expand its current online trade-in program by allowing customers to trade their used video games at 3,100 Walmart stores in exchange for credit toward the purchase of other items.

The world's largest retailer is taking aim at the $2 billion used video game market. It's a business that's dominated by GameStop, the world's biggest dedicated seller of video games with the largest and most-established video game trade-in program.

Retailers from Amazon to Best Buy also offer used video game trade-in programs. But Walmart's new program is the biggest threat to GameStop, which for the past three years has drawn roughly half of its profits from buying and selling used video games.

Starting next week, Walmart customers can trade in video games for credit that can be used in both Walmart and Sam's Club stores. The value for each trade-in will vary by the title, console and age of the game, ranging from just a few dollars for older games to $35 or more for newer ones.

In an apparent flight on GameStop's program, Walmart made a point Tuesday of saying that the credit it will offer shoppers can be used on anything from groceries to a new bike, rather than just other video games.

"When we disrupt markets and compete, our customer wins," said Duncan MacNaughton, chief merchandising and marketing officer of Walmart's U.S. stores. "They'll save money on video games and have the flexibility to spend it however they want."

GameStop did not respond to a query for comment.

Analysts suggest the new program isn't necessarily a death knell for GameStop. After all, other retailers have tried to take business in the used game market with "modest" success, said Baird Equity Research analyst Colin Sebastian, but GameStop has loyalty among video game customers and a broad inventory of new and used video games.

"History suggests the competition is unlikely to capture meaningful share," he wrote.

The trade-in business is appealing for a retailer: When a consumer buys a new game for $60, only a small portion of its sale price goes to the company. But when a consumer turns around and sells that game back to the company, the company can keep all the profits for itself.

But it's also a complex business that requires systems to track and manage used product inventory and pricing and the ability to refurbish products and restock stores appropriately to balance supply and demand.

Still, Sterne Agee analyst Arvind Bhatia said GameStop has advantages that Walmart does not: a large refurbishment facility in Dallas, pricing algorithms and experience developed over a decade.

"It makes sense and feels natural that various retailers that offer new video games would try to offer trade-ins as well," Bhatia said. "However, as many retailers have discovered in the past, buying product from merchants in bulk is quite different than buying one disc at a time from customers."

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