Globally, store-based videogame retail is suffering. In addition to the ongoing collapse of GAME Group in the UK (which is half-saved for now — sort of), NPD recently reported a decline of 34% year-on-year for store-bought games in January 2012 in the US, while hardware declined slightly more (38%). Admittedly, January can be a flaky month for retail, but the overall trend for physical software sales is down.

Why? Some of this is down to a struggling economy and cautious consumers, but it’s also a natural side effect of the trends outlined in the previous post:

• Hardware revenues are declining. No new consoles for some months to come (aside from the PlayStation Vita) means reduced hardware sales; it’s pretty much just accessories and add-ons like Kinect and Move.
• Digital distribution cuts out retail. Digital distribution means money flows directly to publishers (often via platform owners like Sony, Microsoft, and Valve). Even for shop-bought titles, downloadable content can extend play lifetime and put off the next boxed product sale. NPD also recently worked out that $3.3 billion was spent in the US and Europe on digital downloads in Q4 2011. Physical retailers would have seen virtually none of this (aside from selling gift cards).
• Non-gamers don’t see game retail as a desirable shopping “experience”. Most worryingly for game retailing, market growth is almost all in social or mobile gaming. Even if there was a physical product, would mainstream consumers go to GameStop for these?

So what can retailers do? They need to change people’s perceptions of why a store is better than an online portal, otherwise they will follow music and book retailers into obscurity. While GAME group has had a stay of execution, it will need to do something different to secure its long-term future. Four foundations spring to mind (along with the current but declining day-to-day business of software sales):

• Bring secondhand games to the fore (even more). Secondhand game sales are a controversial topic that retailers have typically had to tip-toe around. Publishers get angry at what they see as the lost revenue of a new game sale, but for retailers, a successful secondhand game section makes better margins than new game sales. They have to be well managed to do this though; this means more selective game trading (what you buy, how much you pay), better inventory distribution across multiple stores, and even offloading excess stock via an online portal, partner, or eBay. Making the secondhand section look less like a post-hurricane garage sale would help, too. Of course, publishers may object to this — and come the next generation of consoles, they may pretty much kill this market by withdrawing physical media — but for now, they continue to bring in money in tough economic times.
• Stop toying with online and go all out. The game retail groups may have online portals and e-commerce facilities, some of which are even quite good, but they aren’t Amazon or Play.com good! Retailers need to bring their unique high-street presence to their online offerings: order and pick up in store, trade in and drop off at store, virtual events, and local store forums should at least level the playing field with the big e-commerce players.
• Make the stores more relevant. Yes, I’m going to use the dreadful “retail experience” phrase — but I am going to try not to reference Apple Stores (darn — too late!). Physical game stores have limited square footage, a lot of stock, and cater to a young male audience; they are never going to be “minimal”, “airy”, or “smell good” — but they can change some things. Reduce front-of-store stock and countless racks and fulfill from the back room; introduce more demo pods and advice points. More interestingly, think about demo events, “parent evenings” where you explain things like age classifications and downloadable content — and refocus on supporting digital, with stored value cards, memory cards, and capacity upgrade advice. And always remember: customers without credit cards are your friends!
• Get publishers more involved. Publishers might not like an increased focus on secondhand, but game shops still remain one of the most effective ways of directly reaching the more active component of their customer base. It’s time for them to help out more. Move beyond exclusive downloadable content (which costs publishers virtually nothing) and get publishers to provide previews and showcase material and to create competitions. Ironically, small PC game developers (most of which distribute digitally) may be the best bet here; they can offer show reels, demos, and individual levels that the in-store staff can support. This may also help revise the relatively poor image that store staff have in the eyes of the gaming community.