From Exuberant Youth to Sustainable Maturity - DTI Home

DETAILED UK SUB-SECTOR REVIEW
Exhibit 54: Market share of main video game
retailers in UK and US, 2001 (9months)
UK retailer market share
Others (13%)
Independents (13%)
Blockbuster (1%)
WH Smith (2%)
Argos(3%)
HMV(3%)
Comet (3%)
Virgin (5%)
US retailer market share
Others (19%)
Sears (2%)
Funco (2%)
KB Toys (3%)
Kmart (4%)
Comp USA (5%)
Target (7%)
Babbages (8%)
Source: IDC (International Development Group); Deutche Bank
Electronics
Boutique (24%)
Dixons/Currys (19%)
Woolworths (8%)
Toys R Us (6%)
Wal-Mart (17%)
Best Buy (12%)
Toys R Us (12%)
Electronics
Boutique (9%)
Retail margins vary, from 28-40% on premium titles
and new releases 55 to 10-15% on console hardware,
for an overall margin of around 30%. This means
that retailers retain a very large proportion of the
value created within the market
The dominance of a limited number of retail chains
within a market e.g. EB/GAME and Dixons in the UK
and Wal-Mart in the US, has given the retailers a
great deal of power over other sectors of the value
chain. They are in a position to negotiate very
favourable terms with publishers including large bulk
discounts, sale or return policies or "co-op
advertising" where publishers contribute to retailer's
in-store advertising and promotional brochures.
However, Electronics Boutique in particular is
credited with having played a major part in building
the UK into one of the most developed games
markets in Europe.
UK retail generated leisure software sales of £1bn in
2001 56 . Of this, £357m 57 was retained within the UK
retail sector (the margin that UK retailers retain from
UK retail sales). (See Appendix C - Market forecasts)
55 Source: Interview with leading analyst
56 Source: Screen Digest - Interactive leisure software, market assessment and forecasts to 2005
57 Source: Spectrum games industry forecasts
58 Source: BPI Yearbook 2001, Taylor Nelson Sofres Audio Visual Survey
44 Competitiveness analysis of the UK games software sector Main report
4.7.2 Retail key challenges
E-commerce may be a threat
The major retailers are already gearing up for ecommerce.
In fact, it is very likely that most ecommerce
will be done via retailers' online sites, as
these are brands that consumers already know and
trust. However, there is the risk that publishers will
begin to sell direct to consumers, particularly
hardcore gamers. These more devoted consumers
could easily be directed to publishers' sites via
magazine ads, they are more aware of publishers'
and developers' brands and make more informed
purchasing decisions (less browsing and advice
necessary). This could erode the business of a
staple group of consumers away from traditional
retail, particularly from specialist retailers such as EB
who are more dependent on the hardcore gamer
market.
New retail outlets eroding market share
Supermarkets and other FMCG stores such as petrol
stations are beginning to actively stock games
alongside their music and video selections. These
new entrants are already having a major impact on
the way the sector is structured, with major
publishers such as Infogrames choosing to focus on
these stores as part of their core distribution strategy.
They are also liable to drive down prices by offering
both discounted and budget games. Supermarkets in
particular are also very strict about what they will
choose to stock which is likely to further drive the
concentration of the bulk of sales into a ever-smaller
number of titles.
The supermarkets will truly become a major threat
when the industry becomes mass-market as they
target the widest range of consumers, with far larger
footprint than the specialist stores. The threat to the
specialist retailer EB is somewhat cushioned by its
established, quality, specialist reputation. Dixons and
other music stores may suffer, and the local
independents will have to rely heavily on the loyalty
of their devoted hardcore clientele. The music
industry underwent a similar process in recent years
and supermarkets now control almost 12% of music
retail sales 58 .