A new Best Buy promotion in Utah offers new video games at the same prices as GameStop's used titles, but GameStop has already fired back with punishing sale prices of its own. The war for West Jordan has begun.
GameStop is an amazingly profitable company, and those profits are due largely to the margins the company enjoys on used game sales. When GameStop gives you $15 to $20 for a game that has been out a mere week, then sells the same game for $45, they're making money that no retailer selling new games can match; new games have a very thin profit margin for retailers. Which is why it is surprising to see Best Buy make its new game prices competitive with GameStop's used game prices.
In West Jordan, Utah, an eagle-eye Cheapassgamer reader snapped a picture of a sign at a local Best Buy. It said that Best Buy would price-match any used game from GameStop or GameCrazy with a new copy. So instead of going to GameStop for a $45 used game that has been opened—and of course, used—you can go to Best Buy and pay the same price for a brand-new, sealed copy. All evidence is pointing to this promotion being a small test run in a very few locations, but it didn't take long for GameStop to fire back.
GameStop has the margins to make this fight ugly
Soon after the Best Buy story hit the Internet, Kotaku was given a copy of a flier from GameStop that showed some amazing price cuts on a wide selection of used games. Don't be confused if you haven't seen this sale at your local store; it seems to be localized around... wait for it... West Jordan, Utah.
The games on sale are newer titles, with an additional $10 or $15 knocked off GameStop's normal prices for used games. It doesn't take a cynic to realize that Game Stop is hoping customers flood Best Buy locations with the flier, demanding price-matched new copies of these games. And if gamers go into GameStop locations to take advantage of the sale, the company still wins; the margins on GameStop's used games are so high that it can afford to run this sale and turn a profit, while forcing Best Buy to lose money on each game it sells at these prices.
The thought process going on at both companies has been opaque when it comes to the competing promotions—we contacted both Best Buy and GameStop and have yet to hear a comment from either—but the economics of the situation are clear. GameStop can fight the good fight on used game pricing and still come out the victor, because new games purchased from distributors, even with the scale of large retailers, leave only a few dollars of profit when the game is sold.
GameStop doesn't have to buy its games from a distributor; the retailer has a huge base of loyal customers who are more than happy to turn over games for low trade-in amounts, giving GameStop a margin that can be as high as $30. Best Buy has to be wondering if the buzz is worth selling games below cost.
Will this skirmish turn into a war?
It's doubtful, since both companies are fighting in such a way that their bottom lines are compromised. Best Buy may not be ready to turn its entire new game inventory into a loss-leader, and GameStop loves its high-margin used games. The gaming retailer is likely hoping that its counter-attack will make Best Buy skittish about trying this tactic in other markets, and there may be room to dump used prices further in case the message wasn't strong enough. Once Best Buy kills its promotion, GameStop kills its sale.
It's a cat and mouse game between two giants in the gaming world, with only one clear winner: gamers looking for a bargain in West Jordan, Utah.
New games at used prices: Best Buy's Utah plan starts a feud - Ars Technica
