Industry analyst Michael Pachter has said that retail outlets like Walmart and and Amazon cut into GameStop’s holiday profits, which the company avoided discussing when it revealed its figures for the season yesterday.
“There is a lot to hate about GameStop right now, considering that just four weeks ago, the company issued a bullish press release highlighting its strong November sales,” Pachter wrote in a mailer.
“More importantly, the press release was issued 11 days into December, implying that the strong sales trends from November persisted into December. Today, we learned that the sales trend reversed dramatically, resulting in a holiday comp slightly below the low end of guidance, and a likely earnings shortfall far below street consensus.
“Coinciding with a (-15 percent) drop off in sales in our conjecture scenario were very aggressive price promotions from Wal-Mart and Amazon. Wal-Mart, in particular, offered huge discounts on Wii hardware (an effective price of $149) all month, and as December wore on, it is clear that the impact of this price reduction drove traffic there.
“Nintendo announced this week that it had sold 3 million Wii units in the U.S. in December (vs. 2.2 million last year), and Sony announced yesterday that its global PS3 sales were up 76 percent in December, implying strong year-over-year hardware growth. While some of the unit growth was offset by price declines, and there was a likely decline in PSP and Nintendo DS sales, we estimate that hardware sales in December declined overall only modestly.
“GameStop’s hardware sales, in contrast, dropped 10 percent in absolute terms, and likely high teens on a comp basis. Thus, it is clear that the company lost market share to its competitors.”
GameStop CEO Daniel DeMatteo reported that 2009 Holiday sales for the company were the second-highest ever, and would have beat out 2008 numbers if not for item shortages, winter storms, and economic weakness.
In response to this, Pachter replied: “It is somewhat disappointing that the company blamed its poor performance, in part, to the weather and to product shortages, when its competitors were able to deal with the weather and with product supply during December.”
“We think it is likely that Wal-Mart received preferential allocations of Wii and PS3 hardware, but this raises the question of whether we should expect this to happen every year going forward. We think that, in reality, the core purchaser of video games during the last three weeks in December was the gift giver, and we think that customer (who is targeted by big box retailers) was lured by the aggressive promotions offered at Wal-Mart and Amazon.
“We expect Wal-Mart and Amazon to repeat this aggressive promotional activity at holiday in 2010, and expect GameStop to suffer a similar decline in market share during the latter part of the holidays.”
Sometimes we include links to online retail stores. If you click on one and make a purchase we may receive a small commission. For more information, go here.