GAME: the inevitable obituary

GAME has finally entered administration, and is about to begin the painful process of winding up operations. With over half of the stores already closing their doors, the remaining 300 stores will soon follow (assuming a buyer for the chain cannot be found). Sympathy goes to the employees who will be left jobless as GAME leaves UK high streets, particularly those employees in Dublin who have (as I write this) begun a sit-in as part of a redundancy dispute.

However, it is important not to mythologise about the company’s history. Important strategic decisions have been made which, with hindsight, left the company in a position where it could not compete in a challenging marketplace. Although I imagine many obituaries of the company will be written in the press over the coming weeks, what follows are some “first thoughts” on the strategic decisions (or lack thereof) which contributed to GAME’s disappearance from our towns.

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As buyers transitioned to online physical-game sales, or digital purchases, GAME did not, and was left behind.

As the video games market changed from 2003 onwards, with an increasing proportion of content distributed digitally, the retail market was changing also. Increasingly (in all consumer goods, not just media segments), products were being purchased exclusively online. As a purely physical, high-street retailer, GAME was squeezed from both directions, but was not sufficiently agile to move in either direction, or specialise in profitable physical complementary goods.

HMV, the competitive high-street media retailer, began to specialise in physical products which many customers preferred to have hands-on experience with, prior to purchase. An increasing specialisation in these products (particularly hi-fi, stereo products and tablet computers), along with higher SKU count across DVDs and other media segments, provided a competitive advantage. This strategy (focussing on physical product retail) was not adopted by GAME.

GAME’s online store was too late-to-market and too clunky (dogged by technical problems throughout its life) to challenge serious online physical-game retailers such as Amazon and Play.co.uk. Even HMV managed to establish a more credible online portal for game sales than GAME – with high-street synergies that put GAME at a more severe disadvantage.

In the digital distribution sphere, although Steam’s (the pre-eminent online distributor) sales did not threaten GAME’s then-healthy console business, PC game revenues were diminishing. Pirate products, becoming an increasingly credible and available substitute, put further margin pressure on retailers of “big name” franchises.

As the marketplace changed, GAME did not hold its position as a “speciality” retailer.

As the distribution channels for video games began to change, the profitability of dedicated physical-game retailers began to decline. However, GAME continued to maintain premium positions on the high-street, and payed a heavy property rental cost as a consequence.

Occupying expensive, very central high-street real estate can be profitable for well-differentiated stores, which command a competitive advantage sufficient to command the prices or volumes (or both) required to meet costs. However, increasingly, GAME was at a strategic disadvantage to its peers, losing out to online sales, digital distribution and better-differentiated retailers in with less expensive rental properties.

As credit crises extended across Europe, so did GAME.

As this competitive disadvantage developed, GAME continued to expand aggressively into Europe, rolling out high-street locations across the continent. As the credit crisis in Europe worsened, and the costs of debt in the Eurozone increased, the weighted-average cost of capital for the business increased, putting further pressure on the company to satisfy creditors.

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The gaming market, both in the UK and internationally, changed in a manner that demanded a strategic development from GAME. However, the company simple became more entrenched in an expensive, high-street, physical-game distribution model, which it rolled out continentally, into a deep recession.

Unless a substantial strategic re-engineering can be set up by a buyer (if one can even be found), GAME’s days of trading are numbered. We will miss GAME on our high streets. But it serves as an important illustration that within gaming (and all fast-moving media industries), companies which cannot navigate the tectonic shifts of the market cannot flourish.

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One comment

  1. Pingback: Valve vouch for GameStop? « Games R Srs Bsns

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