GameStop, desperate for extra lives, seeks to sell old video games

Customers view video games at a GameStop store in San Francisco on March 24. The company is going to start selling vintage video games to try to jumpstart its sagging sales.  Bloomberg News photo by David Paul Morris)

America’s attic-trapped PlayStations and cobwebbed Nintendos, retired after years of night shifts in the nation’s living rooms, could soon find they have extra lives.

GameStop, the nation’s biggest video-game chain, plans to launch a massive resurrection campaign of yesteryear’s gaming consoles in hopes of squeezing out new profits — and saving its struggling business along the way.

The $4 billion firm has invested heavily to set itself up as the top supplier of the gaming world’s next big thing. But the rise of direct-to-home game downloads, plus competition from online and retail rivals, now threatens to leave the chain’s traditional brick-and-mortar model behind, and many investors are betting the company won’t survive.

Turning to old-school consoles for a rescue, by hawking old Mario titles as music stores do vinyl, marks a strange new twist in the battle for dominance in America’s explosive gaming industry, which now sees $1 billion in sales every month, NPD Group data show.

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But not everyone is happy with the mega-retailer ridiculed as the “Walmart of video games” attempting to profit off the rosy past. And in an age where new games are designed with budgets exceeding Hollywood blockbusters, will strikingly low-tech games pulled from dusty basements be enough to turn the firm around?

“Retro gamers are staunch defenders of their games and their local game stores, and many see the retailer as a blight that only continues to erode and cannibalize the very soul of gaming,” wrote Derek Strickland, a blogger at VRWorld. “GameStop isn’t welcome here any more.”

GameStop built its biggest profit source through buying customers’ unwanted games and selling them as “pre-owned,” at boosted prices. Used titles for Xbox 360, PlayStation 3 and other recent systems made the game chain $2.3 billion in revenue last year, nearly half of which was pure profit, company data show.

But for game lovers wanting a blue-haired Nintendo 64 or Sega Genesis, they’ve never been able to find them in GameStop. Their princess has always been in another castle: sold second- or thirdhand, in garage sales or on Craigslist, with little to no promise that the systems even worked.

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The retailer on Saturday started buying and trading in shoppers’ old consoles, games and side gizmos from nearly everything from the 8-bit era of the first Nintendo Entertainment System to the born-in-2000 PlayStation 2.

The old toys will be dispatched to a sprawling workshop near the chain’s headquarters in Grapevine, Texas, where technicians will inspect the systems for signs of life before repairing and repackaging them with warranties. Workers at the 180,000-square-foot shop can filter through some 400,000 games in a single week.

The trade-in program will start at 250 of its brick-and-mortar stores around New York and Alabama, with an expansion to all 6,700 U.S. stores by the end of the year. Shoppers will be able to buy what GameStop expects will be about 5,000 retro titles online about two months after trade-ins begin.

The new campaign will funnel into the chain’s strong track record in gaming salvage, an increasingly advanced operation with the ability even to beat manufacturers at their own game. A flaw with Microsoft’s Xbox 360, the “Red Ring of Death,” became a major profit mover for GameStop, which bought shoppers’ broken systems for pennies on the dollar, repaired them and reaped the rewards.

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“This is a fun move and very typical of GameStop,” said P.J. McNealy, an analyst with Digital World Research. “They have figured out how to refurbish electronics efficiently and economically, and probably repaired more Xbox 360s than any other company on the planet. Taking on older consoles is a logical extension.”

Used games are a goldmine for GameStop, because they allow the company a way around the slim profit margins of new games, in which they split the proceeds with studios and publishers. Buying used games for cheap and repackaging them at a premium offers them profit margins of about 50 percent, compared to about 20 percent for new games and 10 percent for new consoles, company data show.

Their profit margins on new games have thinned even further in recent years, as e-tailers and superstores from to Walmart have bit into their bottom line. The new-game industry is seasonally shifty and fussily dependent on the life cycle of systems and the quality of games, adding in unwelcome uncertainty for a public company facing increased shareholder demands for growth.

But the biggest disruption to GameStop’s business model has come from the game giants themselves, which now offer straight-to-system downloads, no need even to leave the house. Every PlayStation 4, Xbox One and Wii U has become its own self-sufficient colony, and downloadable games can’t be traded in like their physical counterparts. GameStop increasingly looks like the CD store at the dawn of the MP3.

Wall Street has mostly signaled doomsday for the time-worn retail chain, which launched in Dallas in the ’80s as Babbage’s with seed money from Ross Perot. The company’s shares have dropped nearly 30 percent since their peak in 2013, and its stock is one of the most heavily shorted in the S&P 500, meaning many investors expect its value to plunge even more.

For retailers, trading on this era of late-century nostalgia is an enticing moneymaker, though not always successful. It’s why Coca-Cola brought back “Surge” and why a fellow retail geezer, like RadioShack, paid $4.5 million to air a Super Bowl ad reminding viewers about Hulk Hogan and Alf — before filing for bankruptcy.

But GameStop’s commercialized wistfulness has the chance to go one step further: to not just offer a version of the old thing but the old thing itself, just as it existed when many of its shoppers were kids — and when the chain first got its start.

That a strip-mall retailer is revisiting (and re-monetizing) the past could lead a new generation of gamers to explore games of the past — though they are just as likely to play them the new-fashioned way, on “emulators” easily available on websites and mobile apps. Even Nintendo offers a clean, simple way to download and play its old classics via the Wii U.

But the game chain’s first big challenge will be a simpler one: supply. Nintendo, Sony and Sega don’t make them like they used to, so the remaining relics are somewhere between high-priced collectibles and forgotten in a garage. To find success, the chain will need a nation of old-console owners to not just remember they have the things but to be aware that GameStop buys games at all.

“Getting people to buy used games is easy, because cheap people will buy used stuff,” Michael Pachter, an analyst with Wedbush Securities, told Bloomberg in January. “Getting people to trade in games requires a relationship.”

Have video games aged into some level of prestige where the oldies can be considered art? They are certainly collectibles: On eBay, old cartridges of Super Nintendo’s classic “Earthbound” routinely get bid beyond more than $100.

GameStop hasn’t said how much it expects to sell the consoles and games for, though analysts expect the chain’s biggest sales partner will come from shoppers tripping down memory lane: selling a life when plastic controllers first unveiled another universe, and when we all had time to play.