Amazon Takes Aim At GameStop With Trade-In Program
March 05 2009 - 3:10PM
Dow Jones News
SAN FRANCISCO (Dow Jones)- Internet retailer Amazon.com Inc.
(AMZN) has taken aim at GameStop Corp. (GME) by introducing a used
game trade-in program that allows shoppers to swap their old video
games for an Amazon gift card.
GameStop is the world's largest video game retailer and has a
trade-in business that has thrived in the economic downturn, with
consumers exchanging used games to save money when they buy new
titles.
Analysts were skeptical of Amazon's trial initiative, but
GameStop investors, already concerned by reports earlier in the
week that retailer Toys "R" Us Inc. had begun testing a videogame
trade-in program, reacted sharply. GameStop shares, which have
fluctuated between $16.91 and $59.13 over the past year, were down
15.43% at $23.09. Shares in Amazon fell 0.7% fraction to
$64.39.
The move is part of Amazon's effort to expand the number of
categories - and products within those categories - it offers to
consumers. That effort, as well as aggressive discounting and free
shipping, has enabled Amazon to weather a worsening consumer
spending slump.
Analysts doubted whether Amazon's program would gain much
traction.
"Our sense is that the online/mail-in used business has
significant disadvantages relative to the retail model, both with
regard to the economics and timeliness of this transaction," said
SunTrust Robinson Humphrey analyst David Magee.
One game player posted a comment on Amazon's site complaining
that the Internet retailer doesn't provide sufficient incentive to
lure him away from GameStop. He said Amazon's trade-in values are
on par with GameStop, but that he can get immediate gratification
at GameStop stores rather than have to wait for a new game to
arrive by mail.
Magee noted that GameStop tried the same online trade-in model
several years ago but discontinued the effort.
"Amazon is a formidable operator, but given GameStop's deep
specialization in the used business, if GameStop didn't see a line
of business here worth continuing we are hard pressed to imagine
others gaining sufficient traction with it to pose a real threat,"
he wrote.
-By Scott Morrison; Dow Jones Newswires; 415-765-6118;
scott.morrison@dowjones.com