Despite giving the best years of my life to the video game business — and emerging with no desire for video games at all — I still read Penny Arcade.
I like the snark.
On Wednesday, Tycho wrote: “I don’t want to keep harping about this, okay, I do, but we went to the Best Buy near the office and saw four palettes of Rock Band for the 360 and one palette for the PS3. This was after being rebuffed in an attempt to secure the same product from the Electronics Boutique, ostensibly a store that sells videogames.”
An EB/GameStop employee reading this would look at that paragraph and say, no doubt, “C’mon, Tycho, you’ve been around long enough to know that if you want a game from our company, you need to pre-order the game.” Indeed, just a few weeks ago I saw online 28 rules for shopping at a GameStop, and G spends a few hundred words on why pre-ordering the game is vital, if you want to buy it from EB/GameStop. A telling sentence: “In my home area in particular, the common attitude is ‘I’ll just come in the day it comes out,’ but the large Guitar Hero bundles were not in huge supply, and those that we did have were all reserved out by people who had paid deposits on them. We accepted preorders on the game for months and plenty of people passed on it and got angry with us afterwards.”
Take that scenario for a moment, as it’s exactly Tycho’s experience, albeit with a different game.
What is the customer likely to do at that moment?
GameStop believes that this is “training” the customer to pre-order games. They wanted a game, they walked in the store to buy the game, because they hadn’t pre-ordered the game and can’t get it they are now more likely to pre-order a game in the future. G is saying essentially — and I heard it said by colleagues when I worked for the post-merger EB — “Customer, it’s your fault you didn’t get the game. You didn’t pre-order it. Now you know better for the future.”
And that is completely valid. If EB/GameStop is the only game in town.
Except that EB/GameStop isn’t the only game in town in virtually every market.
The customer has money in the pocket she wants to spend. Money she wants to spend on Game X, whatever that might be. The customer has two choices. Buy a different product, or go elsewhere. Buying a different product actually doesn’t work in the video game market, as video games aren’t like, say, toilet paper and there’s no equivalent substitute. Offering a pre-order on an upcoming game may be a way of capturing the customer’s dollars at that moment, but it’s far more likely — if Game X is what she’s looking for — that the customer will simply go elsewhere.
Essentially, GameStop’s business model encourages customers — particularly the casual customer who wouldn’t be familiar with the 28 rules cited above — to walk.
And in retail, the one thing you do not want to do is walk a customer. Because if you can’t fulfill the customer’s needs now, what’s the chances that you’ll have the opportunity to fill them in the future? You’ve already burned the customer, you didn’t have the product. They’ve taken their dollars elsewhere, and it’s likely as not that they’ll continue to shop wherever they walked to.
In G’s rules he explains that the margin on video games is thin. The margin on a new game is between ten and fifteen percent. What would seem like a healthy inventory level is carrying around a lot of money tied up in inventory.
GameStop’s buying model — buy to pre-orders — does make sense. It’s risk-averse, as it buys according to what customers have voted with their dollars to pre-buy.
Yet, it’s a buying model that risks losing customers for good. Do the benefits of a inventory that turns over rapidly outweigh the costs of not having a growing casual customer base? That’s the question EB/GameStop needs to ask itself.
Because, to judge from Tycho’s experience, EB/GameStop is driving the casual customer away.