GameStop stock dives after Wal-Mart game discounts

GameStop officials don't think Wal-Mart will hurt sales at stores
such as the one in Collin Creek Mall in Plano.

GameStop Corp.'s stock price took a hit Wednesday after Wal-Mart Stores Inc. said it was discounting many top-selling video games and giving $50 gift cards to Nintendo Wii buyers.

[Click image for a larger version] FILE 2005/Staff photo
FILE 2005/Staff photo
GameStop officials don't think Wal-Mart will hurt sales at stores such as the one in Collin Creek Mall in Plano.

Shares of the Grapevine-based video game retailer fell $1.97, or 8.3 percent, to close at $21.87 after Wal-Mart turned its muscle-flexing onto GameStop's turf.

Since October, Wal-Mart has been selectively cutting prices in popular gift categories, including new release DVDs, best-selling books and popular toys. That forced competitors Amazon.com, Target Corp. and others to match or beat Wal-Mart's prices.

Now Wal-Mart is discounting top-25 video game titles by 15 percent to 20 percent through Dec. 24. Beginning Saturday, it's offering a $50 gift card with a $199 Nintendo Wii purchase through Dec. 12.

GameStop is comfortable with its position as "a gaming destination" because of its "buy/sell/trade model and 2,500 items priced under $20," said Chris Olivera, GameStop's spokesman. "We believe consumers will always rely on GameStop for the best values, the broadest selection, unparalleled product availability and knowledgeable game advisers they can count on."

Wall Street's reaction may have been exaggerated, analysts said.

"This isn't as negative for GameStop as it sounds," said Arvind Bhatia, analyst at Sterne Agee & Leach in Dallas. "The part of the business that's under attack – new games – represents one-third of GameStop's profits. Then we're talking about 25 top games, and that's misleading,"

"Call of Duty Modern Warfare 2, Assassins Creed II, New Super Mario Brothers should be on any top-25 list," Bhatia said.

Wal-Mart's list does include strong titles such as Madden 2010, Left 4 Dead 2 and Halo 3, Bhatia said. Those last two new titles have been discounted on GameStop's Web site since Monday, at $39.99, below Wal-Mart's discounted price of $50, GameStop said.

GameStop makes 45 percent of its profit from used games, 33 percent from new games and the rest from hardware and accessories, Bhatia said. GameStop's profit last year was $398 million on sales of $8.8 billion.

"If Wal-Mart continues to be aggressive on video game prices, that raises the question, are they eventually going to train the consumer to expect new games to cost $50 instead of $60?" Bhatia said.

Read original article on the DallasNews.com

Category: Gaming News | Tags: Wal-Mart, Gamestop, stock, prices, discounting, competition, video games | Posted on: December 4th, 2009