Game saved?

Game saved?

With Game Group, the UK's largest specialist retailer, now seemingly saved – rescued from administration by Baker Acquisitions, advised by private equity firm OpCapita – the retailer is now well positioned to adjust, however belatedly, to the market changes that brought it to its knees. Price competition from supermarkets and online retailers; the rise of digital distribution, social games and mobile apps; a high fixed cost base with too many stores; all played their part in the retailer's entry into administration. Where does it go from here? We spoke to Nick Parker, head of games consultancy Parker Consulting; game lawyer Jas Purewal; and industry veteran Peter Molyneux to find out.

Naturally, all welcomed the rescue of Game's surviving UK stores; 277 were closed last week by administrator PWC, leaving 333 still trading. "It's a good result," Purewal tells us, "especially since even last week there was no certainty that Game UK would be saved." Parker thinks we should "be celebrating that, for the moment, Game will continue with a more appropriate size of real estate."

Molyneux agrees, but warns that, with OpCapita involved, there's no certainty the 3,200 staff whose jobs were saved by the rescue deal will still be employed by Game when its transition is complete: "The rescue is of course good news, although OpCapita has previously ruthlessly streamlined high street operations such as Comet."

It's a valid point. Since OpCapita took over UK electrical goods retailer Comet for £2 at the beginning of February, it has cut 450 jobs, announced plans to close three of the company's 12 distribution centres, franchised its delivery services meaning its drivers are essentially self-employed, and reduced the scope of its repair service. All of these moves have, of course, been designed to help a struggling retailer survive – and one of OpCapita's first orders of business after the Comet takeover was to pressure landlords for reduced rent – but it reinforces the point that Game isn't out of the woods yet.

Some investors – most notably Blueshore Global Equity, which bought an eight per cent share in Game days before it slipped into administration – continued to back Game at the peak of its problems, insisting that there remained a place on the UK high street for a specialist videogame retailer. Does the company being saved prove that's the case?

"This industry needs a retail presence," Molyneux says. "Consumers need to buy gifts and Game have always been a good retail partner to publishers."

To publishers of boxed products, absolutely. But the last few years have seen a meteoric rise in digital distribution, with the download services and mobile app stores cutting the traditional publisher out of the equation. Are Molyneux and Game's backers failing to recognise this change? Purewal doesn't think so, arguing that, until digital becomes the industry standard, there will always be a need for bricks and mortar game stores.

"The reality is that there's a way to go yet until digital distribution becomes the leading channel for game retail, especially in the console market," he says. "In the meantime, I think there's still space for a business like Game Group if it adapts to the current market."

That adaptation will be key. Molyneux acknowledges that Game's first order of business must be "reinventing itself to take advantage of the new digital age"; Purewal expects "a rapid growth in its online presence. Personally, I hope that this will lead to a reinvigorated Game that is price-competitive as well as reflecting more closely the trends in gaming and gamers' lives more generally."

Parker believes that the post-administration Game Group – a leaner organisation with a dramatically reduced cost base and, with former Gamestation boss Martyn Gibbs as CEO, a more gamer-savvy management team – gives it the potential to turn things around, but the recent mess could easily have been avoided. "Game went into administration because it did not react quickly enough when the writing was on the wall three years ago," he says. "Stores should have been more ruthlessly culled, in-store offerings should have been more diversified, and online distribution should have been more advanced.

"These strategies can now be executed with a more receptive board in place, and should be up and running in time for the launch of the next console cycle – an event that high street retailers have always thrived upon. Game Group management should, however, start now in planning what to do to adapt to the market thereafter."

Much remains to be done. Game needs to get publishers back on side to ensure a steady flow of new releases; that, we suspect, will rest not just on re-securing the credit insurance it lost in February, but in reducing its reliance on high-margin pre-owned sales – a long-standing concern among publishers and developers, who see no return on a second-hand sale.

Sources close to Game Group privately describe Gibbs as an executive who understands not only the market in which Game operates, but the tastes and needs of its customers as well. It falls to him to rebuild those strained publisher relationships, to be more competitive on price to stem the flow of sales lost to supermarkets and online retailers, and to position a high street retailer to prosper in an increasingly digital age. It can be done – GameStop made more than $330 million in profit last year – but Game Group is far from out of the woods. Now, the real work begins.

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