Retail Evolution?

Fierce Competition

With the current economic climate providing challenges to most parts of videogames industry, retailers certainly haven't been exempt. High profile closures in the UK alone of videogames stockists include Woolworths and Zavvi, and while the games business for other mainstream and specialist chains alike proved profitable over Christmas there are no guarantees as we work our way through the traditionally quiet part of the year.

But if it's a challenge for the larger chains, what is it like for the smaller, independent companies, who have less leverage with distributors and are equally under threat from new technology in the form of digital distribution?

Richard Stevens, manager of the flagship store of That'z Entertainment in the Lakeside shopping centre in Essex, UK, starts by appraising their local competition.

"GAME is our main specialist retailer competition," he explains. "HMV and WHSmith also stock games but they don't really cause us too much stress.

"We've noticed, however, that in the last year or so we've had a lot more competition from the non-traditional outlets such as supermarkets and we've seen a big swing towards these kinds of retailers."

Non-traditional outlets and non-specialist stores feature prominently in a recent report by industry analyst Screen Digest, which notes that many such stores are looking to increase their share of the videogame retail market. It goes on to state that supermarket chain ASDA - owned by US giant Wal-Mart - forecasts that the next six to twelve months will see the revenue it generates from videogame products surpass that of DVDs.

This has certainly been borne out in the global market with recent figures revealing that worldwide sales of videogame products were greater than that of DVD and Blu-ray in 2008.

Traditional retailers are conscious of the intentions of these non-traditional outlets and acknowledge that they have to alter their view of supermarkets in particular. Several of the retailers I spoke with admitted to occasionally sourcing stock straight from supermarket shelves and as Joe Brown, co-founder of Game On in Gloucestershire, UK, explains the appeal in doing so is obvious.

"Why go to supplier 'A' to buy FIFA 09 on the PS3 at GBP 32.33, excluding VAT, when you can pick it up at Tesco for GBP 29.99 including VAT?"

Many others openly admit to this practice and Stevens considers the long term implications of such tactics.

"I'll hold my hands up and admit that we've sourced stock in this way, especially around Christmas. By doing so it means we can be fairly competitive in the short term, sure, but we are ultimately contributing to the long term problem by increasing their market share."

And Aki Qureshi of Awesome Games, based in East London, agrees: "I have bought games from supermarkets to boost stock or to make a quick couple of quid, but that's not the answer as it's just supporting the supermarkets.

"It enables them to return to their suppliers and say 'We've sold through our stock very quickly, we want another 1000 units and we want them at a better price.'"

A Helping Hand

But he's adamant that there is a solution to what seems like an insurmountable problem with respect to the economies of scale being employed - to redress the balance more help needs to be offered to indies.

"Publishers and suppliers need to better support indies," he said. "When this industry began it was the indies that were there distributing games, long before the likes of GAME.

"At that time the publishers, like Sega, would come to us and ask us to stock their products. Now everything is bigger, the numbers are bigger and the publishers and the suppliers favour the bigger retailers."

However, with help not immediately forthcoming - and even publishers and distributors feeling the economic pinch - it's little surprise that many retailers look to pre-owned titles to generate revenue. Many indies stock just as many pre-owned titles as they do new ones, and in some cases pre-owned and retro titles will be an indie's primary focus.

Giulio Graziani, owner of VideogamesNewYork, was clear that his focus would be pre-owned and retro titles when he set up his current business in 2004, and in the five years since then VideoGamesNewYork has amassed a library of some 60,000 videogames.

He feels that his company has not only benefitted from the higher margins pre-owned titles offer, but that they've also been able to create a little slice of videogame culture in New York in the process.

"We like to have people visit us and have a cultural experience: a small videogame museum chronicling a visible history of videogames does the job. We spend time and effort to expand our museum with very rare or really historical pieces so the customer can feel that we really care about it."

So how does a small independent store - or even chain of stores - even begin to play competing with the ever-greater threat of digital distribution, and could large, real world, software libraries be more of a burden than a boon?

"There will always be people that want to hold the physical media in their hand," says a confident Graziani. "We saw this with Siren on PlayStation 3 last year - it could be downloaded for USD 39.99 but we sold the Asian uncut version for USD 59.99... and we had to restock it four times in a couple of months."

Meanwhile Stevens adds: "I certainly see digital distribution taking off, it's already become more widely used with the PlayStation Store and Xbox Live Marketplace offering more downloadable content (DLC) for games, and I think we'll see this grow over the next few years.

"This could well affect business but I don't believe it will ever replace traditional retail distribution for full games. Digital distribution has a lot going for it but it takes the emotion out of the buying experience."

Alternative Tactics

Away from the physical game boxes themselves some retailers look to other products for larger margins, as well as help in defining their brand image. Game On stocks videogame action figures and the relatively healthy margins they carry compared to that offered by new software titles makes up for the floor space given over to these products.

"Videogame related figurines, collectables, et cetera, and how we present them in store also contributes to our store identity," said boss Joe Brown. "We have two rotating glass cabinets in either side of the front windows displaying game related figures.

"These are very popular and give the customer an idea of what the figures look like out of the box. Being an independent in this business you've got to broaden your options, you've got to search under every nook and cranny to obtain the best deal and stay one step ahead of the specialists without taking them directly head on."

Perhaps the most interesting aspects of an indie's business model, however, are those that display the most innovative or imaginative uses of what are often limited resources.

Game On uses the web at a "grass roots" level and Brown is an active and regular contributor to the forum run by specialist magazine gamesTM - it's an arena that Brown feels has benefited Game On tremendously and also one that appears to have generated an element of good will towards the store.

"Looking at the responses we've got from the forum, from the pictures of the store I put up, my own enthusiasm for what we're doing coming through in my posts on the forum and even having a few members turn up and shop with us, I'd say we've definitely raised our profile."

But is there something beyond all of this? Some higher purpose that indies should be looking to serve? Graziani certainly thinks so and he's keen to highlight how this can be achieved.

"VideoGamesNewYork has recently signed a distribution deal for the US and Canada with Hucast, an independent German developer that is soon to release Dux, a space-shooter for Dreamcast," he explains.

Discussing the deal with Graziani it's evident that this is his passion and he relishes the challenge and reward of using his independent retail status to promote an independently developed and published title.

"We are finally grown into what was forever our dream: becoming an instrument to help independent videogame developers produce, promote and distribute their games. Without independent distribution there is no future for independent console videogames."

His aim is to sell 5000 units by the end of the 2009 and he feels that it's what this figure would signify that will make the effort worthwhile.

"It makes a point, a big one. 5000 copies is not a lot, but it's a significant amount for an independent title distributed through an independent channel," he goes on. "We want to make the point that an alternative market exists and it makes sense to explore it.

"Freedom has to be applied to videogames too and the market should be the judge not a corporate guy at Nintendo, Microsoft or Sony. It will be an exciting prospect and I would be happy to tell you more six months from now.

"At this moment I'm just impatient to get started," he adds.

Whatever happens, it's clear that the little guys - no matter how close they feel they are to the true spirit of the gaming community - will have to work harder than ever to carve off even a sliver of what's still a growing, thriving business.

Whether the unique selling point is indie Dreamcast titles, huge pre-owned catalogues or franchise action figures, ultimately the consumer will decide whether or not that part of the industry survives.

In the end, if the core, enthusiast gamer is the one demographic that will continue to spend as much money as ever before on games, then there's a chance at least. If not, a valuable part of the games family could sink without a trace, and you'd probably never even hear about it.