Best Buy Co. Inc. — the number one electronics retailer in the U.S. — is currently testing the sale of used video games in a few of its stores. With more than 870 stores in North America, Best Buy is trying to tap into the existing used video game market estimated at $800 million (10% of total video game sales) this year.
“The test is limited to relatively few stores. We think it is likely that (Best Buy) will test more broadly as the project takes hold,” Piper Jaffray analyst Anthony Gikas said.
Best Buy has dominated the electronics front with Circuit City at a distant second, and now battles GameStop Corp. and Electronics Boutique Holdings Corp. (which will merge later this year) for competing video game sales. GameStop and Electronics already sell pre-owned video game software — with gross margins of 45% compared to 20% for new software.
This is a bold for Best Buy. Brick-and-mortar chain retailers typically don’t offer pre-owned merchandise, and leave that to smaller retail and independent stores.
There are mixed feelings about selling pre-owned merchandise between video game publishers, music executives and film studios. On one hand, selling a used game means that someone bought that game new at one point. On the other hand, buying a used game means someone isn’t buying that game new. With CD sales dropping — due to increasing legal and illegal downloading — the music industry has tried lowering the SRP (suggested retail price) to encourage more new item sales.
DVD sales, which once were always rising, has leveled off somewhat and the film studios have taken drastic measures to ensure more people are buying new DVDs than used ones from Blockbuster and Hollywood Video — these two video rental chains offer many used video discounts. Movie studios have aggressively lowered the SRP on many DVDs after only a few months (80% of most copies are sold during the first two weeks of a DVD’s initial release) to encourage more sales and retailers like Wal-Mart and Best Buy use DVDs as loss leaders to gain more foot traffic and hopefully sell more high-profit items.
Is it harder to increase revenues through traditional sales of new merchandise? Amazon.com offers buying pre-owned merchandise alongside new items through its online marketplace and eBay is the most successful online marketplace. Has selling used merchandise become not so shunned upon? Should we expect Barnes & Noble to sell used books along with its new copies? Should we expect newspaper stands to offer used magazines and newspapers? I expect Circuit City to begin selling pre-owned video game software as well; Circuit City has already matched Best Buy’s successful rewards program with its own.
With the video game market growing every year and with the soon-to-be-rolled-out next generation consoles like the X-Box 360 this November and the Nintendo Revolution and Sony Playstation 3 early next year, there is a lot of money to be made on all fronts of the video game market.
Original article courtesy of Yahoo! News: here.