There's apparently something blue in something borrowed as a price war breaks out in video game retailing.
GameStop (NYSE:GME) has been feasting on the resale of used games and gear for years. This is the small-box chain's highest margin business, even though it's been fading lately as diehard gamers hold out for new consoles and casual gamers move on to cheaper digitally delivered mobile apps.
GameStop has historically bought back video games and hardware at a pittance and marked the items up substantially.
Best Buy (NYSE:BBY) and Amazon.com (NASDAQ:AMZN) moved to compete by instituting trade-in programs, but GameStop continued to thrive until recently when its resale business started to slump. The sale of pre-owned video game products fell 8% in GameStop's holiday quarter, and it isn't likely to bounce back when the company reports on Thursday morning.
GameStop isn't beyond waxing promotional. Earlier this month, it began offering a sweet deal for anyone trading in some of the more valuable titles. Customers trading in two games in a list of 40 titles could buy a new $59.99 game for $9.99. This amounts to a $25 credit per game, more than GameStop had historically had to shell out. However, if the motivation here is to beef up its pre-owned inventory with more desirable games while getting shoppers back into its stores at a time when comps have been sluggish, it's not a bad move by GameStop.
Best Buy is firing back. The consumer electronics retailer is offering an online deal this week where shoppers buying two pre-owned and refurbished games can get a third one free.
Amazon isn't doing anything out of the ordinary this week, though it has always promoted its trade-in program where the leading online retailer covers the shipping cost of folks wanting to trade in their older games. Then again, Amazon doesn't need this business to work as desperately as Best Buy and GameStop do these days.
The battlefield will intensify, especially as the next generation of consoles emphasizes digital delivery. The war comes at a time when both Best Buy and GameStop are hungry for growth. Analysts see both companies reporting lower sales and sharply lower earnings when they report this week.
When the new stuff isn't selling, it isn't a surprise to see promotional activity pick up on the pre-owned side.