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Blockbuster Rushing Into Gaming Retail Realm

Announcing a greater commitment to video game sales in addition to its successful rental operation, Blockbuster last month said it would bring its full marketing power to dramatically increase its retail share.

“Retail has been an afterthought for Blockbuster until now,” said company chairman and CEO John Antioco during last month’s second quarter results conference call with analysts. “Our plan is to triple our retail share by 2006.”

During the coming months and in time for the 2002 holiday shopping season, the company said, Blockbuster will begin expanding its retail selection to include games, consoles and gaming accessories, including controllers, memory cards, extension cables and publications. Blockbuster will also introduce a “Rent It! Like It! Buy It!” program, allowing its customers to rent a game at the regular price and have the option to purchase either a new or previously-played copy of the game at $5 off the current price when it becomes available.

Antioco was bullish about the growth his company could see in the retail area.

“I have two … words for you: rental and retail. We are no longer content to be the world’s leading renter,” he said. “We will begin to take our fair share of the growing home movie and game market. Our mission is nothing less than to become a complete source of movies and games, retail and rental. We plan to create compelling retail/rental bundles — a combination no traditional retailer can duplicate.”

The video game business for the rest of the year should benefit from the large influx of new games across the PlayStation2, GameCube and Xbox platforms, Antioco said, as well as increased sales of the platforms and game accessories. Blockbuster added Gamecube and Xbox to its mix on Memorial Day and expects sales of systems, games and accessories to be a $1 billion business by 2006.

This summer has seen the company expand its dedicated floor space for games for each of the three gaming platforms, as well as for GameBoy Advance.

GameBoy Advance and GameCube enthusiasts will benefit from Blockbuster’s shift, said Nintendo senior marketing VP George Harrison, but he also pointed out a hurdle for the rental giant.

“I think the traditional retailers believe it will be more challenging than Blockbuster thinks,” Harrison said. “They’re going to have to retrain their customers.”

Harrison explained that gaming enthusiasts for years have used a purchasing strategy where they try out games by renting them before they buy. What that’s meant, until now, is that a rental giant like Blockbuster, while benefiting from all the rentals, has seen its customers leave its stores and go to a traditional consumer electronics retailer to purchase a new favorite game title. “Blockbuster felt it was missing out,” he said. But now, he explained, they can levy their strengths to this retail effort. “Blockbuster has big advantages, they have great display space, they can lay out a lot of titles.”

Chris Gilbert, executive VP of sales and marketing for Sega of America, said he thinks Blockbuster is tapping into a great consumer interest.

“This is a good idea for Blockbuster. We see the rental market as an opportunity for consumers to sample before they buy,” he said. “People will take a chance on a game at $5 a pop where the full purchase price of new game title might seem daunting.”

Gilbert also sees the typical Blockbuster customer as a good match for the gaming market. “There’s really not much difference between the movie renter and the video game renter, although this new effort will require a little different merchandising effort,” he said.

“The disadvantage Blockbuster has is that on the sales side of the business, you have to manage the inventory really well, especially on the back end,” he explained. “Whatever you make on the front side you can lose on the back.”