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Analysis: Amazon No Threat To GameStop

Analysis: Amazon No Threat To GameStop Exclusive

March 17, 2009 | By Leigh Alexander

Now that Amazon's begun offering used game trade-ins, the industry's abuzz with the threat the online retailer poses to traditional brick-and-mortar hub GameStop. But a new report by Electronic Entertainment Design And Research says the threat's greatly exaggerated.

A comprehensive new EEDAR report on the state of the used game market analyzed trade-in values and the prices of 79 games both used and new at both Amazon and GameStop and concluded that the old guard still comes out on top.

"People are resistant to change," says EEDAR analyst Jesse Divnich. "Those that wish to challenge current market leaders must offer a substantial value advantage in comparable scenarios to steal significant market share."

And EEDAR's report finds that overall, GameStop offers on average a 3 percent better value on staight trade-ins. When in-store promotions and loyalty membership programs are included, averages vary depending on the number of games traded in.

Explains Divnich: "In scenarios where a consumer either owns the GameStop Edge card and/or trade-ins more than 2 titles that takes advantage of the current GameStop trade-in promotion (trade in 2 games get 10% extra; 4 get 20% extra; 6 get 40% extra), GameStop provides a considerably higher value than Amazon."

Not only are GameStop customers loyal, the online element works against Amazon for once -- consumers must use postal services to trade in games, and then must wait on the mail again to receive the ultimate value of their trade-ins. This lack of instant gratification makes Amazon a less compelling alternative to GameStop, EEDAR finds.

This doesn't mean that Amazon's entry into the second-hand game market is a failure, however -- far from it. Not only can both services "co-exist in the used business with little overlap between their target demographics," according to Divnich, Amazon's venture is likely to expand the used game market to its betterment.

"Amazon's entry into the used gaming market will expand the used market into new territories and make available to new consumers rather than steal share away from GameStop's core business," says Divnich.

Rather than steal GameStop customers, Amazon's service can reach new areas that the traditional retailers can't. These include rural areas without GameStop locations, more privacy-inclined consumers who don't like doing trade-ins in person, consumers more acclimated to the online service time lapse, and current eBay users who would like a simpler method.

Notably, consumers who trade in games via Amazon can use their credits toward any product that the retailer offers, not only games -- a feature expected to appeal to wider audiences.

This means Amazon's offering will broaden consumer trade-in behavior alongside, rather than in competition with, GameStop, according to EEDAR.

According to EEDAR's analysis, few other retailers will be willing or able to enter the used game market in the way that GameStop and Amazon have -- Toys R Us is unlikely to be a considerable threat to either, says Divnich, as its market gains are offset by declines in marketshare for Blockbuster and Hollywood Video.

As for Best Buy, Wal-Mart and Target, EEDAR says that none look ready to enter the used game market any time soon -- "In Wal-Mart and Target's case, we do not expect them to ever enter that market," says Divnich.

"With the economy in a recession, sales and profit margins are continuing to shrink at retailers," Divnich says. "It is during these tough times that retailers begin to re-examine their current strategies and look for other methods to not only increase their market reach, but also sales and profits as well."

"With profit margins in mind, it is clear why so many retailers are beginning to look at the used business to save them from declining sales and profits," he adds. "While many publishers and developers have commented negatively on Amazon's new trade-in program, we must keep in mind that this is not Amazon's fault-- retailers will travel the path that produces the most profit."

"Publishers have been competing against used media sales of all types (games, music, books, movies, etc.) for years," he concludes. "If not Amazon, it would have been someone else."

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