Nick Kramer is your average gamer in his 30s. He’s a senior trainer for Chase Bank that pays him enough to take his fiancé along with indulging himself in his geek hobbies including video games. He buys two to three games a month, but he never sets foot in a store to purchase them.
“I went straight digital since the Xbox 360,” Kramer said. “Going to a Gamestop or a video game store is only to see if I lost track of a game. If there is then I just remember it and buy it at home.”
The NPD group – a marketing research company that tracks video games sales – reported in January that the video game industry took in $30.4 billion in revenue in 2016. The Commerce Department’s retail sales report for 2015 showed that sales in electronics stores were down from the previous year. Electronic stores sales dropped from $103.5 billion in 2014 to $102.1 billion in 2015. Of those different electronic stores, computer/software stores had one of the larger declines from $27.7 billion to $27.1 billion.
Gamers who buy their games digitally are slowly becoming the norm within the industry and this is hurting retailers.
The largest video game retailer, Gamestop, reported their 2016 holiday sales were down by 16 percent in comparison to 2015. At fiscal 2016 year end, Gamestop operated 5,927 video game store and 1,522 technology-based stores, which sell more non-gaming products. Due to this continuing decline in sales the company will close 150 stores in 2017.
As gamers find the convenience and price of digital purchases to be reason enough to avoid brick and mortar stores, other factors are contributing to the decline in retail sales.Game developers also contribute to the lack of retail sales thanks to online multiplayer modes that have gamers playing one game for longer periods of time.
“I think the biggest driver of sales declines is that people are playing games longer and buying fewer games,” said Michael Pachter, managing director of equity research at Wedbush Securities. “In the past, we saw mostly single-player games, and consumers would finish them in a few weeks and move on to the next game. “
So what are stores like Gamestop doing to combat the drop in sales?
Selling other items that aren’t games.
Being a specialized retailer, the company isn’t like other retailers like Wal-Mart, Best Buy and Amazon that have a variety of goods to sell so in order to stay profitable things had to change. Gamestop stores are not only a place to buy video games anymore. Now you can purchase wireless phones from providers like Cricket Wireless and other non-gaming items include clothing, collectible figures and in-game currency cards.
In-game currency is virtual money used in their respective games to purchase items that can unlock clothing, items or characters for a player. NBA 2K17 has Virtual Currency, Call of Duty: Infinite Warfare uses Points and Grand Theft Auto V uses Shark Cash Cards. These cards can start as low as $2 and work their way up to more than $100. These in-game currency cards are now a big seller, which actually hurts retail sales.
“People are spending $500 plus on a game like GTA V,” said a Gamestop manager. “They (customers) come in almost weekly to buy more Shark Cash Cards. Same thing with NBA2K and Virtual Currency.”
That anecdote is a symptom of the problem with retail sales said Pachter.
“Now, virtually every game has a multiplayer component, and the publishers keep content fresh with regular downloads of new maps, giving players something to keep them interested,” he said. ” People are still playing GTA Online, even though the game came out in 2013 on old consoles and 2014 on next gen consoles. The fact that they want to trade in other games for currency to spend in GTA says it all. Clearly, retailers are going to sell whatever they can, but it’s a vicious cycle.”
Released on March 3, Nintendo’s newest console, the Nintendo Switch, has become a big hit for retailers. Shipments of the new console sell out in hours as demand for the console is high.
In his equity research report, Jeffrey Thomison, senior vice president of research at JJB Hilliard Lyons said, “GameStop store traffic could get a much-needed boost in this debut quarter for the Switch.
At his Gamestop, the manager has high hopes for 2017.
“This is going to be a big year for us,” he said, “It’s been awhile since the Big 3 (Nintendo, Sony, Microsoft) have been firing on all cylinders.
Pachter, on the other hand, sees it differently.
“I don’t see the Switch as a game changer,” he said. “If the Switch is a big success, we may see some stability in game sales, but more likely, the decline will continue.”