The Secret to GameStop's Success

Even in a recession, folks still want to play games.

Grapevine-based GameStop is reporting a 22 percent growth in profits in the fourth quarter, to $232.3 million as more people bought video games during the holiday season.

With fourth-quarter revenues topping at $3.5 billion, GameStop is truly racking in the dough. But how are they doing it?

First, they're everywhere: Within five miles of my home, there are five GameStops -- I pass three on my route to work. This allows game buyers easy access to the stacks and stacks of game releases available at each store.

Then, they hammer hard on major profit makers -- pre-orders and used items. Their pre-order system guarentees a game for any consumer that puts up a deposit -- that promises GameStop a sure sell on launch day, where games are priced highest. When they sell pre-orders on high profile games, they can reduce ratios of unsold copies and project accordingly on how many copies need to go to what store.

Used items, including games, systems, and accessories are even bigger money makers as consumers can bring in these items for "trade-in" value, which GameStop gives in store credit rather than cash. This system give GameStop additional inventory to sell and makes sure consumers can only use the "money" for other GameStop inventory. This double whammy gets upgraded as GameStop raises prices on traded in items to slightly under retail value when they sell the items to consumers. A traded in game released in the last 30 days might get a trade-in value of $30 after being sold at $49.99, but GameStop will raise the price to $45.99 when they sell the traded item back to consumers.

This is a major profit for GameStop as the used prices entice some consumers to buy mostly used items thinking they'll get that small discount -- in reality, GameStop is getting a much bigger profit on the deal, making at least $15.99 on that example.

It's pretty smart business, but does have it's detractors. A popular YouTube whistleblowing series called Zero Originality has exposed many of GameStop's business practices from the inside. Other groups are encouraging not using the trade-in program, and, instead, using online game selling/trading sites like Goozex.

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