Video chains put on 'game' face in hopes of 4Q software boom - Brief Article

DSN Retailing Today, Sept 23, 2002 by Doug Desjardins

NATIONWIDE DSNRT REPORT--With the fourth quarter set to kick off next week, entertainment retailers are counting on video games to deliver strong sales during the holiday season. Several chains have restructured their stores and expanded their game sections for a three-month run that's expected to produce another record year for the video game industry.

Best Buy's Sam Goody and On Cue stores have been expanding their game sections as part of an effort to offset slumping CD sales. This summer, more than 200 On Cue stores added new game hardware, accessories and interactive game stations as part of their conversion to the Sam Goody chain.

"We added all the major game consoles, along with lots of accessories and more game titles," said Best Buy spokeswoman Lisa Hawkes. "And all the stores are interactive now so customers can sample a new game or check out a new game platform."

Hollywood Video is gearing up for the fourth quarter with the opening of 100 new Game Crazy stores. The small, 1,000-square-foot stores sell and trade new and used game hardware and software and are built within or adjacent to Hollywood Video stores.

The chain has been testing the Game Crazy concept for more than a year and reported in July that the average store generates more than $400,000 in annual sales and an operating profit of $42,000. Hollywood president Mark Wattles said those results, coupled with the upcoming release of hundreds of new games in the fourth quarter, triggered the rapid rollout of new stores. He predicted that "video games should become an even bigger benefit to our industry than DVD."

Blockbuster Entertainment also has been busy preparing for the holiday rush. In late May, the chain redesigned and expanded video game sections in 4,400 stores in an ongoing effort to capture a larger share of the video game market. Stores now have separate sections for each of the three major game consoles and have added hardware sales to the merchandise mix. Blockbuster's senior vp of communications Karen Raskopf said the idea was to get the sections established during the summer and get "geared up for the holiday season when game sales really take off."

Analysts say retailers have good reason to be bullish about video game sales. The industry generated a record $9.4 billion in revenue in 2001 despite the late arrival of Microsoft's X-Box and Nintendo's GameCube. This year, those consoles are firmly entrenched along with Sony's Playstation 2 and carry a lower price. Sony and Microsoft slashed the price of their systems from $299 to $199 in June and Nintendo lowered the price of GameCube from $199 to $149.

Those reduced prices should drive software sales, and game publishers are preparing a massive launch of new games. They include titles based on upcoming movies, such as the second installment of "The Lord of the Rings: The Twin Towers," "Harry Potter and the Chamber of Secrets" and the new James Bond film, "Die Another Day."

"There's certainly going to be a lot of opportunity for cross-marketing video games with movies, licensed product and. even video releases," said Michael Goodman, an analyst with The Yankee Group in Boston. "There's going to be a lot of things to help games cross-pollinate in the market." Goodman said retailers also will benefit from the Nov. 15 launch of Microsoft's new online gaming initiative, "X-Box Live," which will give players access to Internet gaming with the purchase of a startup kit for $49.95.

Barring an unexpected slump, the industry should eclipse last year's sales record. NPD Funworld's senior account manager Richard Ow said sales for the first seven months of 2002 were up 20% over last year. The only downside is that sales could be impacted during the fourth quarter by lower console prices generating less revenue.

As Ow sees it, the biggest problem retailers may face this fall is finding enough room to stock a huge selection of new titles. "I've heard some retailers are doing resets and looking for other ways to increase their gaming space," said Ow. "They're entering a period where they're going to have to make some tough decisions in terms of space."