Wal-Mart Stops GameStop?

Forget Xbox Live. The real video game multiplayer experience is taking place in the software resale market.

GameStop (NYSE: GME  ) has another invader to deal with, now that Wal-Mart (NYSE: WMT  ) is installing third-party kiosks that buy back used games.

According to industry-tracking website Gamasutra, the "Video Game Buyback" automated machines are in just 2% of Wal-Mart's thousands of stores at the moment. The E-play kiosks also compete with Coinstar's (Nasdaq: CSTR  ) Redbox in renting out DVDs for a buck a day, along with renting video games.

However, the near-term concern for GameStop is that some Wal-Mart stores are becoming yet one more place to sell back used games. Toys "R" Us and Amazon.com (Nasdaq: AMZN  ) have also been testing the buyback model. Reselling used games and gear is a higher-margin business for GameStop than selling wares the first time around.

Do these places have the same in-store expertise as your neighborhood GameStop? No. Will it matter? Insert a game disc into an E-play kiosk, and the machine analyzes it. A few days later, your credit card will be credited between $0.50 and $25 for every successful return. As long as the rates are competitive with those offered by GameStop, it will be problematic for the chain. In fact, the faceless automaton may be a blessing to the mother who wants to clear out her kid's old games without wondering whether she was had by a wily salesperson.

A wider rollout of these game-sucking automatons will also be a threat to another popular resale outlet: eBay (Nasdaq: EBAY  ) . Why bother to list tired titles on the auction site and deal with insertion, transaction, and shipping fees, when a trip to the store can settle things once and for all?

While E-play may or may not be the rival that finally makes a serious dent in GameStop's franchise, GameStop investors need to get past the chain's trend-bucking near-term results, and begin assessing the competitive landscape on the horizon. There are too many new entrants sidling into the used game market. Software companies such as Take-Two Interactive (Nasdaq: TTWO  ) are even teaming up with console makers such as Microsoft (Nasdaq: MSFT  ) to deliver games directly into consoles.

I'm not suggesting that shareholders should begin shoving their stock certificates into E-play kiosks, and settling for pennies back on each invested dollar. However, it's sadly becoming clear that GameStop may not be as relevant in the future as it is right now.

Other games to play:

Amazon.com, eBay, and GameStop are Motley Fool Stock Advisor picks. eBay, Microsoft, and Wal-Mart Stores are Inside Value recommendations. Take-Two Interactive Software is a Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz will admit to still playing video games, though finding time is the tricky part. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On May 19, 2009, at 2:58 PM, dragonlady2u wrote:

    "had by a wily salesperson"? GameStop set the prices for the trade in values, not the salesperson. They try to give you the most for your games.There is almost always a promotions to give you more credit on your games, usually having to bring in 2 to 3 at a time. If you don't want to talk to people and just want credit on your credit card, fine. There are lot of people who don't have credit cards, so this is of no benefit to them. Most gamers want more games and do like to have the interaction of a salesperson.

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