Can GameStop Survive Walmart Video Game Trade-In Competition?

Retail

Published: March 18, 2014 9:10 am

GameStop Corp. (NYSE: GME) has had a challenging time from attacks on its business on all fronts — online sales, freemium games versus premium games, and big-box retail efforts. Now its shares were getting bruised on Tuesday on news that Wal-Mart Stores Inc. (NYSE: WMT) is directly targeting the GameStop model with a new push with its trade-in service and preowned game offerings.

Walmart said in its press release that it wants to offer the 110 million-plus gamers in the United States a new way to unlock value in their current purchases and to save on video game spending. Walmart said:

Starting Wednesday, March 26, customers will be able to trade in their video games and apply the value immediately towards the purchase of anything sold at Walmart and Sam’s Club, both in stores and online. The traded-in games will then be sent to be refurbished and made available for purchase in like-new condition at a great low price.

Walmart even said that it is “actively taking aim at the $2 billion pre-owned video game opportunity.” And as far as the GameStop targeting, the company may not have been named directly but Walmart said:

When we disrupt markets and compete, our customer wins. They’ll save money on video games and have the flexibility to spend it however they want.

What matters here is that some 3,100 stores will participate, and even more importantly that the credit can be used on the purchase of any merchandise at Walmart and Sam’s stores. GameStop’s used vide game turn-in credit for customers is for GameStop purchases.

As far as what the market thinks about the new competition, it isn’t pretty. GameStop shares were down more than 5% and were still down closer to 4.4% at $38.00 on last look.

GameStop shares have traded in a 52-week range of $24.89 to $57.74, and the consensus price target prior to this news was just above $50.00.

So, can GameStop survive this effort? Most likely yes, but with some pain and competition.

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