Best Buy aims kiosks at gamers

By Rachel Tobin Ramos

The Atlanta Journal-Constitution

It’s about 7 feet tall, dressed in blue and has a friendly interface. It will let customers trade in their video games and movies in exchange for store credit.

It has no formal name, but call it a new hope for Best Buy to gain market share, sales and customers from Wal-Mart and GameStop.

In addition to trade-ins, the kiosks will rent DVDs for a $1 a day, plus tax, and sell games and videos — a swipe at NetFlix and Blockbuster.

Georgia is one of two test markets for the Best Buy kiosks. Texas is the other.

Certainly, a lot is at stake in this battle over virtual entertainment.

Sales of video games and consoles grew to $18.8 billion in 2008, a 20 percent increase from 2007, said David Magee, a retail analyst in Atlanta with SunTrust Robinson Humphrey. About 17 percent of Best Buy’s revenue comes from entertainment software, according to its annual report.

Some of the shine is coming off the sector, however, Magee said, as the price of game consoles came down, the recession deepened and some game launches were delayed. Despite the record-breaking November launch of Call of Duty: Modern Warfare 2, “This year, we’re looking for sales to be about $18 billion, so flat to down,” Magee said.

He thinks Best Buy will not be able to accomplish with a kiosk what GameStop is doing with its personable service at its stores.

“Best Buy is a great company and will get some slice of share from somebody, but they’ll have a hard time getting a meaningful share from GameStop,” he said.

He explained GameStop’s sophisticated software calculates the trade-in price of a video game based on how that title is anticipated to sell. The company has developed this algorithm over many years. A kiosk, said Magee, can’t do that.

GameStop certainly has a head start. The Grapevine, Texas-based company has been specializing in the buying, selling and trading of used games for more than 15 years. The chain had $1.83 billion in sales in the third quarter, an 8.2 increase over the same period a year ago. The company has been adding about 200 U.S. stores a year.

GameStop even tried and discarded the idea of self-serve kiosks. The test market? Atlanta.

“We got away from them because the consumer didn’t really have a great response to them,” said Paul Raines, chief operating officer and the former head of U.S. stores at Atlanta-based Home Depot.

Still, he said of the Best Buy experiment, “We are watching very closely.” In general, however, he said, “We have not seen a significant impact to the used business from all the new entries [to the market]. They tend to be really splashy announcements, but we don’t see impacts over time.”

Best Buy would be the first to admit the kiosks are experimental. They are being tested in 23 of 30 Georgia stores, and 39 stores in the Houston and Dallas markets. Company spokeswoman Erin Bix was somewhat vague on answers to certain questions, saying she “can’t comment too much on the tests.”

She would say, however, that customers led the charge for the trade-in service at the 10th largest U.S. retailer.

Best Buy store manager Jim Howard at the store on Cobb Parkway in Marietta said there has been a learning curve.

“Customers are asking questions,” he said. The machine is located by the cash registers, near the door.

Best Buy hasn’t done much advertising around the kiosks — yet — so for now the company is relying on word-of-mouth and outreach from the sales clerks, especially in the gaming section. Bix said Best Buy will start advertising locally after Christmas.

“The response from customers has been very positive,” Howard said. For him, success will be repeat business at the machines, which will drive more customers into his store. The credit is good for any store merchandise, not just games, he emphasized, noting that is an important aspect for parents (wink, wink, Mom). “They are still in the store, so they will hopefully buy something else,” he said.

Best Buy’s most recent quarterly revenues were $11 billion, a 12 increase. The Richfield, Minn.-based retailer’s revenues reflected adding its European division and 170 net new stores to its revenue side and a 3.9 percent decline in same-store sales.

At Best Buy, as at GameStop, trade-in prices vary.

On a recent day, the Best Buy kiosk offered a $3.20 credit on the game “Into the Inferno” from the Avatar: The Last Air Bender series.

The following day, GameStop’s trade in price for that game was $5, without any frequent buyer cards or other advantages.