Growth in the videogame business has intensified competition in the retail marketplace.‭

In the‭ ‬UK,‭ ‬specialist chains and independent stores are battling to defend market share as supermarkets and non-traditional outlets‭ (‬NTOs‭) ‬look to games to‭ ‬drive footfall,‭ ‬and home entertainment retailers step up their interest to offset stagnation in other categories.

This trend was very much in evidence in the run up to Christmas.‭ ‬Recently,‭ ‬leading supermarket chains have offered steep discounts on games console hardware and software to take advantage of the holiday sales season:‭ ‬Asda promoted the Xbox‭ ‬360‭ ‬and PS3‭ ‬versions of Pro Evolution Soccer‭ ‬2009‭ ‬at‭ ‬£27,‭ ‬46‭ ‬per cent below the‭ ‬suggested retail price‭ (‬SRP‭ ‬£49.99‭)‬.‭

Tesco adopted the same strategy for FIFA‭ ‬09,‭ ‬releasing the game at‭ ‬£29.71‭ ‬on PS3‭ ‬and Xbox‭ ‬360,‭ ‬41‭ ‬per cent below the SRP of‭ ‬£49.99.‭ ‬Meanwhile,‭ ‬Sainsbury’s slashed the prices of both the‭ ‬Arcade and Premium versions of the Xbox‭ ‬360‭ ‬to‭ ‬£100‭ (‬SRP‭ ‬£130‭) ‬and‭ ‬£130‭ (‬SRP£170‭) ‬respectively.‭ ‬The Wii was also discounted to‭ ‬£150‭ (‬SRP‭ ‬£180‭)‬.‭

Zavvi recently followed suit when it reduced its prices for Xbox‭ ‬360‭ ‬and PS3‭ ‬hardware in the run up to Christmas.‭ ‬The trade price of a new games release typically represents around‭ ‬65‭ ‬per cent of the SRP,‭ ‬which suggests that supermarkets are promoting some headline titles at below trade cost.‭

Employing games as a loss leader to increase store traffic and to grow market share emulates the strategy the supermarkets adopted for DVD.‭ ‬This approach has had a significant impact on the DVD retail landscape as supermarkets eroded the market share of specialist chains and‭ – ‬to a much greater extent‭ – ‬generalist stores.‭

In‭ ‬2007,‭ ‬supermarkets overtook specialist retailers to become the dominant channel in the‭ ‬UK,‭ ‬boasting a‭ ‬30‭ ‬per cent share of total DVD unit sales according to data from the British Video Association.‭ ‬The evidence suggests that the games market could be going the same way.‭

Asda has indicated that within the next six to‭ ‬12‭ ‬months it expects its games business to be bigger than its DVD business.‭ ‬The supermarket is considering introducing a pre-owned games trade-in service and game downloads,‭ ‬as well as starting up its own publishing label.‭

Rival chain Tesco has already launched an online games portal as part of its new digital proposition.‭ ‬Supermarkets are in a strong position to increase their share of the games market,‭ ‬particularly since the gamer demographic has broadened.‭

Nintendo’s Wii console and DS‭ ‬handheld have expanded the market beyond the core target audience,‭ ‬with titles that appeal to groups‭ ‬that would not usually consider‭ ‬videogames as a form of entertainment‭ – ‬such as women and families‭ – ‬and that are easily targeted within supermarkets and NTOs.

These products have diversified the games business to such an extent that clothing specialist‭ ‬Next began selling videogames through its catalogue and its online service in July.‭ ‬Increased competition from NTOs‭ – ‬as well as from the big supermarket chains‭ – ‬is one significant reason why home entertainment retailers are placing greater emphasis on their games offerings.‭

Declining CD sales and stagnation in the DVD business has also encouraged these chains to dedicate more floor space to games.‭ ‬Indeed,‭ ‬HMV is attempting to compete directly with games specialists.‭ ‬The company has launched a videogames trade-in service and is due to roll out an in-store arcade experience.‭

Branded Re/Play,‭ ‬the scheme allows customers to exchange videogames for store credit‭; ‬160‭ ‬HMV stores now accept used PS2,‭ ‬PS3,‭ ‬Xbox‭ ‬360,‭ ‬Wii,‭ ‬PSP and DS titles.‭ ‬Credit is redeemable against any product in store.‭ ‬Separately,‭ ‬HMV has acquired in-store try-before-you-buy‭ ‬videogame service‭ ‬Gamerbase.‭ ‬The latter has been operating on a concessions basis in HMV’s‭ ‬London Trocadero site since‭
December‭ ‬2007.‭

Following the acquisition,‭ ‬HMV will be rolling it out to other stores.‭ ‬The rise in prominence of the supermarkets and NTOs poses a serious competitive threat to specialist chains and independents.‭

Gamestation acknowledges that the‭ ‬UK games retail market is‭ ‘‬exceptionally crowded‭’‬,‭ ‬but it is responding:‭ ‬Gamestation.co.uk recently ceased charging for delivery in the‭ ‬UK,‭ ‬bringing its service in line with rival online retailers.‭ ‬Meanwhile,‭ ‬Game has‭ ‬expanded its concessions deal with‭ ‬UK book chain Borders.‭

Following a trial of Game concessions in six of its stores,‭ ‬Borders has extended the Game installations to a further‭ ‬14‭ ‬stores.‭ ‬According to Borders,‭ ‬depending on how the partnership develops,‭ ‬it may roll out Game concessions to its remaining‭ ‬20‭ ‬stores.‭ ‬Strategies such as these may help specialists stave off competition,‭ ‬but overall these chains can expect to concede market share.‭

However,‭ ‬since the pie is larger than ever,‭ ‬this will not necessarily translate into revenue erosion.‭ ‬That said,‭ ‬the future looks bleaker for independents as long as they are unable to compete on price,‭ ‬convenience and‭ – ‬in most cases‭ – ‬range.

Piers Harding-Rolls is Screen Digest's Senior Games Analyst.