Private equity firm OpCapita‘s acquisition of Game Group saved the retailer from extinction and kept more than 300 of its stores on the UK high street, but for how much longer?
The new owner of Game argues that the demand is still there for a high street specialist in video games and that significant streamlining can enable the retailer to flourish again, but many industry observers are not convinced.
Matt Piner, retail analyst at Conlumino, believes that OpCapita‘s rescue act will not be enough to save the beleaguered retailer in long term.
“Obviously a lot depends on how much OpCapita invests in the company, but I would be very surprised if Game still existed on the high street in three to four years time,” Piner said.
With supermarkets selling video games cheaper and online being more convenient, the business model of Game is going to have to change to compete, but it is difficult to see what OpCapita can do to reverse the retailer‘s decline.
According to Richard Perks, Retail Director at research firm Mintel, the changing nature of the market means there is not a place for a specialist games retailer on the high street anymore.
Perks said: “The lengthening gap between new technology launches, competition over new games – it just seems to be that this is a market for generalists who can flex the space according to the state of the market.”
Despite the numerous challenges facing Game, OpCapita secured the backing of six banks for its plans in bearish times which shows that it has certainly done its due diligence and must have a clear strategy on how to improve performance.
Jon Copestake, retail analyst at the Economist Intelligence Unit, argues that if OpCapita can restructure the company‘s debt and restore a bit of confidence with suppliers then the day-to-day situation should improve rather rapidly.
More than 250 stores from the chain have been lost as part of the administration process and this should considerably ease the financial burden on the retailer, but the real question marks hang over the longer term prospects for the business.
Video games are increasingly being bought online, and most of the other of retailers selling physical video games on the high street are either generalists which can offer games as a loss-leader or more broadly-based entertainment retailers such as HMV.
Game‘s fall into administration was due to suppliers being unwilling to accept revised trading terms and Piner argues that this highlights exactly why the retailer, unlike HMV, is ultimately beyond saving.
Piner said: “There was a stark contrast between the support shown by suppliers to HMV, which essentially allowed it to carrying on trading, to the reluctance shown by manufacturers to back Game.
“The fact is that manufacturers don‘t need Game.”
This point is supported by figures from the Entertainment Retail Association which show 45.1 per cent of all video games were bought online last year and that during the 12 months to December 31st 2011 electricals chains, general merchandisers and supermarkets each sold more video games than specialists did.
Another problem is that traditional video games are being superseded by new digital alternatives, with Eurogamer earlier this year estimating that the UK gaming market shrunk by 13 per cent in 2011 to just £2.5 billion, at a time when smartphone app gaming is booming.
Copestake added: “Sony‘s Handheld PS Vita was received sluggishly by the gaming market and we could increasingly see consoles becoming a pastime for a small but loyal core of gamers, for which there is no place for mass-market retail chains.”
To complicate matters further OpCapita is not just attempting to turnaround one ailing UK retailer but two, having bought electricals specialist Comet for just £2 last year.
Richard Perks, Retail Director at research firm Mintel, s