Toys "R" Us isn't the only retailer circling GameStop's (NYSE:GME) turf these days. Amazon.com (NASDAQ:AMZN) is also making a run for GameStop's lucrative video game resale business.
"Video Games Trade-In" is the latest virtual storefront at Amazon. Gamers with titles in original packaging can make a little extra money by selling their former favorites to the online retailer. Amazon covers the shipping fees and credits an account once it receives the shipment.
Since Amazon is selling everything from clothes to food to digital downloads these days, Amazon credit is as good as a suburban mall shopping spree.
The trade-in values are more than fair. Amazon will buy back your used PS3 copy of Tiger Woods PGA Tour 09 for $20, a title it sells new for $46.99. An Xbox 360 version of Gears of War 2, selling new for $53.99, can be sold back for $22 after you tire of it.
At the very least, this will keep GameStop's trade-in values honest. Investors will want to see whether Amazon forces GameStop to work off thinner margins. Blockbuster (NYSE:BBI) also sells pre-played games to make room on its racks, but GameStop has elevated this niche to high art.
However, GameStop isn't the only company biting its nails. Video game publishers like Take-Two Interactive (NASDAQ:TTWO), Activision Blizzard (NASDAQ:ATVI), and THQ (NASDAQ:THQI) have to be livid. They don't make a single penny on game resales. If the dour economy dries up and folks just start swapping games, the developers are toast. There will naturally be a market for new releases, but as competition for gamers' hearts and thumbs increases, it's shrinking all the time.
Software companies will no doubt fight back. They are already migrating to digital delivery, bypassing the retailers entirely. Since there isn't a market for swapping console downloads, publishers may have the last laugh on masters of resale.
For now, at least, you have to like Amazon's chances. It is responding to both a real-world retailer's successful model and the needs of cash-strapped gamers. Amazon may win this battle, but the war is only beginning.
Other cheat codes for investing:
- Toys "R" Us is testing trade-ins in a few stores.
- I have three similar stocks that I think will beat out GameStop.
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