There is this debate going on between a friend of mine in the retail industry and myself. It is over who gets the slices in the new, video game, sales pie, and how that compares or contrasts used game sales. Now I thought this would be a simple conversation that would help a theory I have about why used game sales are pushed so hard. The theory goes, how much does a retail game store anticipate used game sales, sometimes multiple times from one copy, to figure into recouping lost revenue from unsold new games?
Suffice to say the conversation never got to that point. Instead this conversation turned into a debate over shipping costs/practices, managerial experiences, corporate operating procedures, and perhaps a couple other fleeting comments that cannot be recalled. Now trying to explain to another person that companies operate differently to the effect that money and decisions are spent / made differently seems to be a foreign concept.
However, I find it hard to accept a comment such as, "This company I used to work for bought and shipped directly from the publishers," is a little hard to swallow. This is when I am of the belief that no major player such as Nintendo, Microsoft or Sony would ship directly to individual stores, or even corporate headquarters, when they could ship to a national wholesaler in huge bulk. This eliminates headaches on the publisher's heads and leaves that up to another company. The publisher gets their money and the retailers all get to buy from a distributor who in turn buys from the wholesaler. This has been my experience as a manager in retail computer industry, so why should it be that different in the consumer electronic industry?
Eventually the conversation shifted to how much does the retailer pay. Now, I could never get a clear answer from my friend as to whether the initial purchase cost is fudged or not. I could only get an example to the effect of corporate pays for the game, and we (the stores) purchase the games from corporate. Then corporate pays for shipping and we get the deliveries. Well the problem here is 'corporate'. How can you say that what is put into the company computer, that the managers read, is the true price corporate purchased that game at? You cannot. While I was managing a medium sized computer retail store I got in the good graces of the regional manager. This allowed me to discover little practices the company’s corporate headquarters did. Little practices such as marking up the initial cost / resale / retail prices in the register to reflect shipping costs not only to the warehouse, but also to our store. This skewed prices so the stores could never compete locally or with internet promotions from our own company website, nor really allow the stores to understand why the company could not get the prices other’s were getting, cost wise. Who is to say that my friend’s old company did not do the same practice of passing the buck along to the stores by hiding the extra cost inside the entered price? Now my friend is working for a new company that deals directly with a distributor. I am being told the same is true from that distributor’s prices. So, how is a distributor any different from a corporate chain? Unless you buy from a wholesaler, which often sells to distributors (go figure), who purchases insane amounts of stock from publishers, is a retailer really getting any relief in the price, I think not. With thinking all this I was told that while working for the previous company the most markup my friend had seen was around eight dollars.
Sensing I was not going to convince him of my position given the little information known, I resigned myself to go out and do a little research on what other more independent sources were saying. After an hour or so I came up with three sites of which to average totals from and come up with an aggregate average of the sales pie.
Forbes.com Andria Sang LA Times
What these three sources told me was that I initially had it right.
Retail: $14.50 (However, only Forbes.com said after operating expenses a store is lucky to see $1 of that)
Distribution: $4
Publishers: $12
Developers: $19
Royalties: $8
Given the amount of difference between the three articles numbers it can be said that these are fairly close numbers. Perhaps the next time I happen upon another debate on this topic I can better articulate my case. Perhaps those of you reading this will be able to as well.
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