Why Does Everybody Hate Gamestop?

in Blog, Business, Observation by LAS on October 14th, 20094 Comments

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Gamestop is vilified for being the evil empire of games, controlling pricing and availability with an iron fist. Many think their top priority is to rip off the customer and see the management team as greedy beyond measure. I want to suggest that this is far from the case, and Gamestop is merely another corporation in the industry we all love.
 
I will analyze many of the criticisms leveled against the company and explain why they’re not fair. I will argue that you can criticize the game industry in general, but singling out Gamestop is unfair and unwarranted. (I realize I’m going to take a lot of crap for this one)

Does Gamestop really rip us off?
 
The chief complaint I hear from the gaming community is that Gamestop is ripping off customers with their pricing.
 
“They buy a game from the consumer for pennies on the dollar and then turn around and resell it for only $5 less than a new game. Gamestop isn’t like any normal company looking out for their customers and building goodwill, they just want to use you and lose you. They’re screwing both the developers and us, the consumer!” Sound familiar?
 
When we get into real financial statistics, however, it quickly becomes apparent this isn’t accurate. Let’s compare Gamestop to a company like Apple which has huge customer loyalty and is generally thought of as a company that does ‘the right thing,’ and has a target demographic that overlaps with Gamestop. Apple’s operating margins are 21%. Gamestop? 8%. Apple is making over 2.5x the profit as a percentage of sales in comparison with Gamestop.

Which one of you wants to sign up for Game Informer? Please! I’m desperate

Which one of you wants to sign up for Game Informer? Please! I’m desperate

 
It’s used specifically that’s the problem
 
Some criticism of Gamestop isn’t in reference to their overall margins. After all, they sell hardware and new games that have much lower margins and that decreases the average. It’s on used where they make the real money and where they really rip us off!
 
The real question is why is Gamestop the only legitimate used market participant? We have heard about Amazon, Wal-Mart and Toys R Us getting into the market recently to try to capture some of those Gamestop profits, but their lack of traction shows it’s clearly not a clear cut case of a company massively overcharging their consumers.
 
Gamestop has spent hundreds of millions of dollars building up a refurbishment facility so they can take almost anything a consumer wants to trade in. They do provide a service with used games that goes beyond merely repackaging it and turning it around on shelves.
 
In addition, the premium you’re paying by going to Gamestop and using their trade-in services is what you pay for the convenience of going around the corner and receiving a game the same day. If you’re willing to wait and go through the mail, you can get slightly better prices from Amazon, or far better prices on peer to peer marketplaces such as Amazon marketplace and Ebay.

Don’t look now Gamestop, but the competition is heating up

Don’t look now Gamestop, but the competition is heating up

 
It’s not like Gamestop is raking it in; even a discount retailer like Wal-Mart earns nearly 6% margins, close to what Gamestop is earning. Customers frequently cite gross margins for used games which are close to 50%, but that merely shows the difference between the price Gamestop pays the consumer and what they sell a used game for. There is a ton of work that happens on the back end and at the end of the day overhead eats up a good percentage of that.
 
The used transaction model is required to subsidize Gamestop’s stores and ability to sell new games and hardware.
 
Prices are too high?
 
Maybe your criticism isn’t that Gamestop is abusing consumers with their used policies, but that prices in general are too high; $60 for a videogame? It’s not Gamestop that is setting prices, however, as retailers don’t only suggest a retail price, but essentially enforce it by charging a wholesale rate on which retailers can only survive by charging $60.
 
Gamestop has no value?
 
Some consumers argue that Gamestop is entirely unnecessary and digital downloading is the future. What we’ve seen, however, is that digital downloading doesn’t decrease price to the consumer, it just raises margins and product control for the developer.
 
Consumers have criticized rising Xbox Live and PSN pricing that has trended higher since launch. There are the occasional developers such as Valve who have frequently released free DLC for their games and charge a lower rate through Steam than they might be able to at retail, but they are the exception, not the rule.

A recent Steam patch includes a button that hires freelancers to burn down Gamestop stores!

A recent Steam patch includes a button that hires freelancers to burn down Gamestop stores!

 
It’s not like used games have no value to the consumer. The effective price of a game purchase when new is closer to $40, not $60, if you’re going to play through it and trade it in immediately. In addition, purchasing used games mean cheaper sticker prices for us up front.
 
So Gamestop is perfect?
 
There are plenty of legitimate complaints about Gamestop. They push their products on consumers in an offensive way at the register. They frequently withhold games from customers because they chose not to preorder something even if there are plenty of copies in stock. They aren’t always good about taking back used product that doesn’t function. The list of flaws is significant.
 
I’m not trying to argue that Gamestop is perfect. I think there are huge opportunities for improvement, and I’m excited about the opportunities generated by digital distribution. Regardless of whether the consumer receives a lower price, somebody is going to make more money from removing retail overhead and that means higher development budgets and better games. Digital distribution services also give more control to the developer so money goes to the creative talent and not just the publishers.
 
I’m only saying that Gamestop is maligned for being greedy when they’re not making a ridiculous margin and they don’t abuse the market. Competition has tried to eat their lunch, and Gamestop remains dominant because they offer an extremely streamlined and efficient service for used games that adds value and is hard to replicate.
 
They’re not perfect, but perhaps some of our animosity towards them stems from the fact that we always want more for our hard earned dollars. They may be the most visible target, but they’re not necessarily the right one.
 
I’m interested in your thoughts on the matter. Hit up the comments!

LAS

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