GameStop: Publishers fight piracy, not secondhand sales

The brick-and-mortar business of specialty retailer GameStop is apparently under siege. Digital distribution has been growing in popularity and significance for years. Competing retailers are increasingly devoting shelf space and promotional efforts to games. The pool of competitors is deeper than ever. And to top things off, after years of grumbling about used game sales cutting into their bottom lines, publishers appear to be combating the practice by including one-time-use codes for downloadable content with new games.

Gamers who bought Rock Band 2 new received a code to download a selection of 20 new songs for free. Gears of War 2 came with a code to download a map pack of levels from the original Gears. New copies of Nintendo's Wii Speak peripheral include a code to download the Wii Speak Channel for free (although Nintendo customer service will give out new codes to those who buy it used as well).

But that's not the way GameStop sees it. In the second part of his GameSpot interview, the retail chain's executive vice president of merchandising and marketing Tony Bartel gives his take on such efforts. In addition, Bartel discusses how the company is changing its preorder pitches to avoid alienating hardcore gamers, and how it views the prospect of big-box retailers getting into used games.

GameSpot: One recent trend has seen some publishers trying to counteract used game sales by including these one-time-use codes for downloadable content in games like Gears of War 2 or Rock Band 2. Have you seen that tactic working with those titles, and how are you trying to fight it?

Tony Bartel: Well, first of all I see it not so much as an issue of coming against the used games [business] as much as it is I think more about piracy and ensuring that piracy isn't widespread. I mean, I think that it's been well reported when Spore was launched, the piracy that took place on that was just incredible. So I actually think what people are doing is looking for alternative ways to find ways to either add some additional content to the game through microtransactions to actually ensure that there's a lower level of piracy that takes place.

So in terms of fighting it, I would say that we're really doing nothing to fight it. What I would say is that we are being very specific with the publishers and letting them know that our customers really believe that it's an incredible value to be able to transfer the game at any level. So anything that really begins to impair the transferability of games from one person to another, we think that that's not a real appealing thing for the customer. So what we're trying to do is to ensure that the publishers have the ability--which we strongly support--to be able to ensure that their games are not pirated, that our customers continue to have the ability to transfer those games, and that you'll have the full value of that game when it goes to, say, a second owner.

It's important to note that in every situation where transferability of games has been impacted by single-use codes, we have worked on behalf of our customers with the publishers to insure that transferability is not impeded, and these dealings have been very cooperative and effective.

GS: So you don't even view this as an effort to undermine used game sales at all?

TB: I don't see it as much. I don't think that that's the primary issue that they are attacking. And definitely as we've talked to them, what we are hearing is that this is really an attempt to ensure that they're able to actually not have their games pirated.

GS: One of the big stories in games over the last few years has been the emerging casual market, or just the expansion of the gaming audience. Nintendo's been chasing that market pretty hard, leaving some of the core gamers feeling left out, or ignored by them. How does GameStop, which is the big core gaming retailer, cater to those casual people without ticking off the core customer?

TB: Absolutely. It's a great question, and it's a question that I think all of us have to deal with because you are seeing this burgeoning new customer coming into our stores. You're seeing young children come in. You're seeing women come in. You're seeing older people come in than what we're typically used to seeing.

What we find is when the core gamer comes in, they pretty well know what they want, and they require a different level of service than what the expanded audience does. So we've actually just generated some training programs that we've rolled out this fall that actually split these customers into [groups]. Here's how we deal with the core gamer, here's how we deal with the expanded audience. And it definitely takes a different approach, but what we are seeing is that our associates--who are extremely knowledgeable about all games actually--are great guides for people when they come into our store to get them to the right game.

Based on third-party research that's been done industrywide, what we found is that GameStop is actually the preferred place not only for core gamers to go, which you would expect, but when they asked the gift-givers, they actually showed GameStop as the most favorable place to actually go and shop. So we have a great shopping experience when people get in. I think our opportunity is to let people know first that we exist. Even though we have over 4,300 sites throughout the US, people still wonder, "Where is there a GameStop?" And the second opportunity that we have is once people know that we exist, to let them know that there's a reason to come in.

GS: One complaint about GameStop I've heard from core gamers for years is that they don't like being pestered about preorders when they walk in the door. Will that change with the segmenting of the audience? With the core gamers--who like you said, know what they want--will you be leaving them alone a bit?

TB: Sure. I think definitely what we want to do is give each customer exactly what they want. And you're exactly right. What we have found is that the core gamer knows what they want and they know about the reservation program. I think what we want to do is continue to add value to the reservation program. Rather than it being something that we press on a customer, what we'd like to do is have it be more of a draw. And so that's why you're seeing a lot of the exclusive content that we're talking about like you saw in Call of Duty, like you saw in Guitar Hero or World Tour. Those types of things are what we would like to do, to really make it a differentiated element to make sure that you get that game at GameStop.

So absolutely the last thing that we want to do is try to press on customers something that they don't want. So obviously what we're going to do is really work that value. The best thing that could happen is that people would be asking us for those reservations as opposed to us having to chase those.

GS: So you'll still be pitching them, but you'll be pitching them with a focus on the exclusive stuff that they might not already know about?

TB: Absolutely. What we'd like to do again is make sure that there's real value in that reservation. That if you come to GameStop and you reserve it at GameStop, then there's real value. You actually gain something by it. And so you'll see a lot more of that in the future.

GS: Now, the value used to be that you'd get the game on launch day, and there are a lot more non-specialty retailers that are getting better about having games out on launch day. But the coverage is still a bit spotty. Why is it so hard to get a game out on launch day when we can go into any bookstore or music store and be reasonably assured of picking up a CD or a book on day one?

TB: I think part of it is the developmental cycle is pretty well just in time on a lot of these games. And it is a massive effort, just given the size and the scope of getting these out is a sizable effort. Books and music pretty well have a fairly consistent launch date. With games, it could launch on a Friday, it could launch on a Tuesday, it could launch on a Saturday. And so you have a lot of logistical issues to get it out there.

GS: Is there a reason for that variety of launch days, even?

TB: Part of it is marketing around events. Part of it is the fact that some people want to launch on a weekend, some people want to launch on a weekday, some people want to launch with a movie title. It all depends. Some people want to launch on Halloween.

The other thing that I think differs in our industry is that many times we're capacity constrained, which you really don't see in those other two industries that you talked about. When you talk about music, when you talk about books, you don't have the huge licensing fees that third parties have when they actually distribute a product. So oftentimes what you're faced with, and especially in cartridge-based systems or when you have peripherals like Guitar Hero, you literally have demand that far outpaces supply.

It's just the investment that they have to make whether or not they sell the product requires them to be very tight in their allocation process. Which frankly is another reason why reservations are so important to us because it gives us a very strong indication of the launch that we expect from certain games.

GS: When I used to shop at Funco Land, they'd have flyers with all their buyback prices on them.

TB: Yes.

GS: Why isn't there an online database of all GameStop's buyback prices? Because I know myself and a lot of other gamers would like to know what we can expect to get before we drive out to the store.

TB: Sure. Well, part of that is that it does vary from time to time. So we think that there would be some customer confusion that would be generated at that point if you were to go in and say online you actually saw this price. You bring it in and we may give you a different price. We definitely want to avoid that confusion.

Also I think at that point there were fewer competitors who were actually in the used business at that point, and at this point we'd basically be using a price list as the leader in the used business, which is something that at this point we've chosen not to do.

GS: Just don't want to make it too easy for Game Crazy or Game Rush or whoever they are?

TB: I think there's a lot of competition that would be there, and so that's one of the reasons that we haven't put it on the Web.

GS: There were some big-box retailers--I think Best Buy and Circuit City--who tested used games in their stores last year. They haven't rolled anything out, but does it concern you at all? Do you guys expect there to be more competition from established names like Best Buy, Target, or whomever?

TB: I think what they found is something that we've known for a long time, that there are huge barriers to entry to get into that market. The largest barrier to entry is that you have to have a refurbishment department that's actually able to do this. Your inventory management system has to be extremely nimble. You have to be able to move that product to the places where it sells because you literally don't know what's [going to be] coming in where, and you know exactly where it will sell, but you have to get it there. So it requires an extremely nimble and very flexible inventory system, which we have.

Second, it does require a large investment, and we have made a large investment in our refurbishment center because it's really difficult to test. I mean, if you've had systems that they're fine one day and then they don't work 24 hours later and then you come back and they'll work again... You can't test everything 100 percent, so in order to be in that business you have to be able to fix a lot of the product that comes in.

And I think people realize when you come into that business, all of a sudden you get two things. First of all, you get inventory in a place where you really don't want it, and you have to figure out what to do with it at that point. And second, you get a lot of inventory that just doesn't work. And if you don't have some sort of a system that will quickly get that back into production, you're really not going to be able to be in the used business.

So I guess I'd be foolish to say that we wouldn't be concerned if we had a large, big-box enter in a big way into the used business, but I think what they have found is that there are huge barriers to entry that may be hidden at first glance.

GS: OK. Now, earlier this year I had to order Williams' Pinball Hall of Fame from Amazon.com because GameStop didn't carry it new, not even on the Web site. Now, why can't gamers rely on the world's largest gaming retailer to carry pretty much all new releases, even on their online store?

TB: Well, a couple reasons. First of all we have more SKUs as you know than anyone out there, and so to a certain extent we just have to limit the SKUs. We can't buy every single product that comes out. We are literally bombarded with thousands of SKUs each year that we have to basically take a look at and say, "Is this something that we can actually carry in our stores?" And we have to look at it and say, "What is the volume of sales that that's going to generate?" And then we have to say, "OK, now, is that a cost-effective decision for us to move forward with that?"

And we do have a limited amount of space in our stores. That's pretty obvious to anybody who goes into our stores. We have tremendous amount of variety. I wouldn't even try and put a multiplier on how many more SKUs we have than our closest competitor, but it's a large amount. It's a huge magnitude. And so we have to make some decisions on certain games that we just are not going to carry those.

Now, your point on the Web is an interesting one. At that point we just have to look at minimum quantities that we could bring in, and in some cases it would be such a low quantity that we could do that. I'm assuming from Amazon it's just when they get an order they go direct to the warehouse and get it shipped out as opposed to going through a retailer that fulfills that. So I would anticipate that we probably go deeper into titles than any other mainstream retailer, brick-and-mortar retailer, but there are just certain games that we choose not to carry.

GS: What percentage of the games released do you think that GameStop does carry?

TB: I do not know. I'll have to get back to you on that question.

[Bartel did follow up on this question, saying the company reviews between 8,000-10,000 SKUs each year, and the average store carries 6,300 SKUs].