Amazon Tests the Used Video Game Waters

Includes: AMZN, GME
by: Seth Gilbert

GameStop (NYSE:GME) proved buying and selling used video games igme-used-new-chart-metue.pngs a lucrative market. When earnings are reported later this month, the company is expected to announce more than $2b in fiscal year revenue from second hand goods, and all at higher margin than primary sales (click chart on right). Still, opportunity notwithstanding, other retailers have generally shied away from entering the space. Between managing the quality of products, the risks of alienating suppliers (many of whom pay “market development fees” to the retailers), or even the risks of cannibalizing primary sales, it’s just not been worth it. But now sales are down and times are tight. Consumers are looking for bargains. That has some retailers rethinking their choices.

Recently, Toys R Us launched a limited New York area pilot to allow customers to trade in used game titles for store credit. Best Buy (NYSE:BBY) is rumored to be considering doing similar and Thursday, Amazon (NASDAQ:AMZN) launched a beta of its own.

Amazon’s offering is extremely straightforward. Visitors to the company’s website run a simple query to find the trade-in value for their unwanted games. Immediately, the site will show the payout. If interested, print a shipping label (free) through the site and send the game in. On receipt, a credit will be issued in the form of a store-wide gift card.

Success or failure, for Amazon there’s little risk. The actual buyer and seller of the used titles is NorAm Partners, LLC, a third party merchant affiliate. Amazon is merely managing the transaction and handling fulfillment.