Summary
Best Buy and Toys R Us likely share a good deal of customers, but that doesn't mean they can't both succeed in the used game space if they put their own brand to work against the program. Tougher than competing against each other will be competing against Game Stop. As big box retailers vs. a small, focused specialist like Game Stop, execution in the high touch and un-scaled management of used games will be challenging. Category management, from how the product is taken in, to how it is QC’d, and how it is displayed, will require a considerable shift in discipline and approach from the largely centralized and uniform process environments Best Buy and Toys R Us are currently managed in.
Analysis
Game Stop has clearly demonstrated used games can be a very good market. Used games contributed about $2 billion in Game Stop's sales last year, or almost 25% of total revenue, with profit margins more than double that of new games on average.
Add to that the benefits of:
• Giving both used-game sellers and buyers reasons to visit the store more frequently due to the daily change in inventory
• A more captive, or loyal, customer relationship than through a basic buy/sell transaction
• Offering compelling value in a awful economy where everyone wants their dollar to go further, and
• Offering a more green, less waste, solution for consumers who have grown tired of, or just don't like, their games.
All things being equal, BBY should have an overall market advantage in attracting used game inventory, which will be key to attracting the used game buyer. They have the broadest merchandise assortment to cash in trade-in credits against, and a well evolved loyalty program whose infrastructure could be leveraged for a super effective system for tracking, managing and optimizing the program with their customers.
In any given market where both stores exist, Best Buy will no doubt draw an older crowd with broader and more sophisticated game tastes; Toys R Us will be a solid draw for families with kids 10 and under, (as they are with new games), and who find themselves in a Toys R Us on a frequent basis.
As long as each store continues to offer a compelling value proposition and create loyal customers, there is room in the market for both of these retailers to have a successful used video game business, they will just look different.
Success will ultimately depend on their ability to execute in a straightforward, cost effective and consistent manner as Game Stop has.
