Investors might not have guessed it from the weak outlook that GameStop (NYSE:GME) gave for its fourth quarter, but the company has some big plans in place to dominate video game retailing this holiday season. And while that's true for many retailers, there are some good reasons to believe that GameStop can actually do it.
For one, the company is entering the next-gen console upgrade in the strongest competitive position that it's seen in years. After logging a 15% boost in new software sales last quarter, GameStop's share of that market grew by more than 5 percentage points.
Things are looking even better on the hardware side, as it boosted share by 7 percentage points there. Company president Tony Bartel described GameStop's current market share as sitting at "peak levels," which was likely a big factor behind the blowout 20.5% comparable-store sales rise that it booked in the quarter -- GameStop's best performance since early 2008.
Next, there's the company's loyalty program, called PowerUp Rewards, which just passed 26 million members in the United States. And just as Starbucks does for its massive loyalty program, GameStop counts that user base as a major competitive advantage. The direct line of communication it has with all those members allows GameStop to drum up business, and it gives the company a unique and proprietary look at demand around the industry.
For example, GameStop's recent survey found that a full two-thirds of its members expect to own either a Sony (NYSE:SNE) PlayStation 4 or Microsoft (NASDAQ:MSFT) Xbox One within the next year-and-a-half. That's valuable information for the retailer to have, but GameStop can also use that data to lobby the two console makers for a bigger allocation of what's sure to be tough-to-find devices on Black Friday.
However, here's another insight that GameStop pulled from its loyalty member base: The single biggest thing holding back all of those next-gen purchases is affordability. At $400 for the PS4 and $500 for the Xbox One, those systems threaten to eat up a huge portion of any shopper's holiday budget.
But that's where GameStop's vibrant trade-in business comes into play. The retailer aggressively pushed for trade-ins last quarter, which led to a total of $300 million in credit that was mostly used to buy new games and hardware. Gamers with pre-owned systems and software titles swapped them in, and effectively got a discount on their new purchases. In fact, GameStop says that new product purchases are usually funded around 14% with trade-in credit, making them that much more affordable, and giving the retailer a leg up on the competition over a key pressure point for consumers.
Foolish bottom line
Just about every major retailer has plans to "win" this holiday season. And for many of them, that means being competitive on sought-after electronics like next-gen consoles and mobile devices. GameStop took a different tack this week by telling investors to expect a slowdown in sales growth to between 2% and 9% in the holiday quarter. However, the company looks primed to beat that guidance, thanks of the success that it should have around the Black Friday shopping crush.