The sky isn't falling: Why game retailers aren't headed for disaster

The sale and focus on a "tighter purchasing strategy" follows the January announcement that Dick Smith's parent company, the grocery giant Woolworths, is looking to sell the electronics retailer. Its fellow game retailer, GAME Australia, is also looking for a buyer.

Jared Stanfield, a specialist in corporate finance and mergers and acquisitions at the University of New South Wales calls the move "profitable pruning".

"In an economic downturn, companies want to focus on what they're actually good at," he said.

"Each company needs to ask itself: where do I add value? Woolworths would have asked themselves: by owning Dick Smith, do we have some special knowledge that allows us to add more value, or are we better off selling it to someone more specialized?

"With recent market downturn, it seems like Woolworths is simply wanting to 'trim the fat' so to speak and focus on its liquor and grocery store business."

The fat du jour that retailers are trimming appears to be video games. It's not that games aren't selling - they're just not selling as well as they used to in traditional stores.

"There's been a real change in the landscape of gaming retailers - especially with the rise of online content - the value of these brick-and-mortar stores has gone down," Stanfield says.

"In the United States you have big retailers like Best Buy and GameStop running into the same thing - you have high fixed overhead costs such as leases and a lot of stores, and more and more people are purchasing things online."

Stanfield says that even the used game market, which was a strong point within game retailers, has weakened, with publishers forcing players to use codes that they need to purchase if they want to play online. This undercutting of the used games market is a huge blow to game retailers.

"It wasn't that they were doing something wrong all along - it's just things have changed and in order to survive they need to make adjustments," says Stanfield.

In the UK, the specialist gaming retailer GAME was driven into administration after experiencing high debt levels and unprofitable stores. A last-minute purchase by OpCapita brought the retailer out of administration. It is now working towards becoming a more efficient, smaller company, its overseas branches are up for sale.

GAME Australia remains fully operational despite the struggles of GAME in the UK. Paul Yardley, managing director of GAME Australia, says that while the industry is undergoing changes, there will always be room for gaming stores.

"Specialist retailers are critical to the success of the games market," he tells Polygon.

"They allow consumers to access the breadth and depth of range of physical and digital product, the ability to get hands-on with new technologies, and crucially the advice to understand what's right for them."

Where digital retailers might be able to sell games at a lower price, Yardley says consumers may not be able to ask questions and get the support they need from digital store staff. Where general retailers might stock games and serve as one-stop-buy-everything shops, consumers could find that the titles they want may not be available.

In the US, GameStop increased its digital offerings in its online store, creating a hybrid approach. The company is now progressing towards a goal of $1.5 billion in digital receipts by 2014.

As GameStop moves to close its unprofitable stores in Portugal and 27 underperforming stores in Spain, it is making strides in the digital market and continues to grow.

According to Stanfield, now is the time for stores like GAME and Dick Smith Electronics to act to ensure that they also stay around in the years to come too.

He says that retailers need to offer something online competitors cannot, whether this be in-store services, staff advice, or an opportunity speak to another human about games.

A perfect example of specialized retail is Apple Stores, Stanfield says.