How do stores cut a profit after a price drop?

[mykevermin]

I was just thinking about this yesterday; considering that we are all fortunate enough to have so many games available, market rules dictate that game prices drop really quickly in order to stay competitive.

So, how in the world does EB or GS not lose their ass if they are collectively sitting on several thousand copies of a title (pick any one) that just dropped in price from $50 to $30? $20? Do stores suffer losses from universal price drops? Are sales of new releases and used titles (where we know the markup is incredible, and they probably only lose their ass on sports titles and "Primal,") enough to offset any loss they might have? I suppose I know the answer to the last question (they are, after all, still in business); however, I'm curious about when and how (and how much) stores buy games from distributors/publishers.

[Snake2715]

I believe its initally like $43 for a $50 retail game.

From what I have heard and put together:

Sony, Sega, Microsoft etc always refund the store or offer credit when a price drop takes effect. I dont think Nintendo does or its not as significant (which is why I believe we see less drops for Nintendo First Party Titles ie Mario Party etc)

This may be mis info but thats how I understood it.

[slidecage]

I was just thinking about this yesterday; considering that we are all fortunate enough to have so many games available, market rules dictate that game prices drop really quickly in order to stay competitive.

So, how in the world does EB or GS not lose their ass if they are collectively sitting on several thousand copies of a title (pick any one) that just dropped in price from $50 to $30? $20? Do stores suffer losses from universal price drops? Are sales of new releases and used titles (where we know the markup is incredible, and they probably only lose their ass on sports titles and "Primal,") enough to offset any loss they might have? I suppose I know the answer to the last question (they are, after all, still in business); however, I'm curious about when and how (and how much) stores buy games from distributors/publishers.


i think they pay like 35 bucks for a new title maybe 30.. many stores will dump the items and take the loss just to get space for new items

[dafoomie]

i think they pay like 35 bucks for a new title maybe 30.. many stores will dump the items and take the loss just to get space for new items
No, its about $41-$44, even for the huge chains. There is very little profit in new games... Thats why they push used games, 3rd party accessories, warranties, magazine subscriptions, membership cards... When theres a price drop, the stores don't take a loss, they get a credit. Thats why the publisher is able to dictate price drops.

[pimpinc333]

I believe its initally like $43 for a $50 retail game.

From what I have heard and put together:

Sony, Sega, Microsoft etc always refund the store or offer credit when a price drop takes effect. I dont think Nintendo does or its not as significant (which is why I believe we see less drops for Nintendo First Party Titles ie Mario Party etc)

This may be mis info but thats how I understood it.

Correct, Like dafoomie said also its more like $40-$44 a tore will generally pay.

[Santurio]

Used, they stay in business by selling you new games for $50.......buying them back for $25 in credit.......which you have to spend in their store......and selling your game used to someone else for $45. All additional items like acc. help out alot too and those discount cards.

[STATIC3D]

After talking to some people about this in the past, it turns out that game stores make a LOT more money on their used games/hardware than the new stuff. Nowadays they basically use the new stuff to get you in the store, but would rather actually sell the used stuff since the mark up on it is so much higher.

I understand the idea that they have overhead to pay like store location, electricity, employees, etc., but the EXTREME markup on non-newer titles they have is just insane. They may only pay $1 or $2 for a title they put on the shelf (as soon as you walk out) and ask $10 to $15 (if not more) for it. With that kind of mark up, they are still making a killin when they have the buy 2 get 1 free sales.

Hey Snake2715, you probably already have seen this, but just in case you haven't...
http://junkerhq.net/cgi-bin/display.cgi?image=img595&imageinfo=Kyle+Reese+and+Solid+Snake

[wubb]

When theres a price drop, the stores don't take a loss, they get a credit. Thats why the publisher is able to dictate price drops.

Now that does make a lot of sense.

[mykevermin]

Thanks for all the excellent information.

[Snake2715]

Hey Snake2715, you probably already have seen this, but just in case you haven't...
http://junkerhq.net/cgi-bin/display.cgi?image=img595&imageinfo=Kyle+Reese+and+Solid+Snake

Yeah its pretty interesting. Metal gear was my allt ime favorite game for the NES.

After the 16 bit era I dumped home consoles for the PC and then well my car and never came back until they released Metal Gear for PS1 I bought it just for that game alone.

Thanks for the link as I hadnt seen that site before.

[Reality's Fringe]

It doesn't make sense to me that Gamestop or Wal-Mart would pay the same price as a sole-proprietor. The volume that the two aforementioned chains buy in would have to necessitate some form of discount, at least it would seem.

[62t]

From the TRU topic, it looks like it is closer to the $35 range for a $50 game. Which also explain the deals Frys have.

[dafoomie]

It doesn't make sense to me that Gamestop or Wal-Mart would pay the same price as a sole-proprietor. The volume that the two aforementioned chains buy in would have to necessitate some form of discount, at least it would seem.
They don't. But the difference is not that great. Where someone like Defender may have paid $44, the big boys pay $40-$41. Profits are razor thin on new games.

[ogreeley]

After talking to some people about this in the past, it turns out that game stores make a LOT more money on their used games/hardware than the new stuff. Nowadays they basically use the new stuff to get you in the store, but would rather actually sell the used stuff since the mark up on it is so much higher.

I understand the idea that they have overhead to pay like store location, electricity, employees, etc., but the EXTREME markup on non-newer titles they have is just insane. They may only pay $1 or $2 for a title they put on the shelf (as soon as you walk out) and ask $10 to $15 (if not more) for it. With that kind of mark up, they are still making a killin when they have the buy 2 get 1 free sales.

Hey Snake2715, you probably already have seen this, but just in case you haven't...
http://junkerhq.net/cgi-bin/display.cgi?image=img595&imageinfo=Kyle+Reese+and+Solid+Snake


Talk to somebody who works in a jewelry store if you want to talk mark-ups. I few years back my buddy got me a diamond pendent for my wife at cost. Retail $1450. Cost $235. Hate to break it to you but all retail marks their stuff up. Most cases it’s much more then this. The only thing different is we see what their paying us and them we can walk over to the shelf and see what they are selling it for. Hell, I wish all retail stores bought stuff back like game and cd stores do. I’d love to get a buck or two for some old shirts I’m not using anymore or $10 for the broken tv in the garage. Yeah, I could have a yard sell, but I’d rather take it to a store take what the give me and not really care what they did with it after that.

[Villy]

Talk to somebody who works in a jewelry store if you want to talk mark-ups. I few years back my buddy got me a diamond pendent for my wife at cost. Retail $1450. Cost $235. Hate to break it to you but all retail marks their stuff up. Most cases it’s much more then this. The only thing different is we see what their paying us and them we can walk over to the shelf and see what they are selling it for. Hell, I wish all retail stores bought stuff back like game and cd stores do. I’d love to get a buck or two for some old shirts I’m not using anymore or $10 for the broken tv in the garage. Yeah, I could have a yard sell, but I’d rather take it to a store take what the give me and not really care what they did with it after that.

Yep. And the funny thing is, there is always crying about the mark-up on used video games. The thing is, over time, which is where the money is really counted, that profit is only 45%. Pretty much all of us buy clothing with more profit margins that that.

[eshbums]

I was just thinking about this yesterday; considering that we are all fortunate enough to have so many games available, market rules dictate that game prices drop really quickly in order to stay competitive.

So, how in the world does EB or GS not lose their ass if they are collectively sitting on several thousand copies of a title (pick any one) that just dropped in price from $50 to $30? $20? Do stores suffer losses from universal price drops? Are sales of new releases and used titles (where we know the markup is incredible, and they probably only lose their ass on sports titles and "Primal,") enough to offset any loss they might have? I suppose I know the answer to the last question (they are, after all, still in business); however, I'm curious about when and how (and how much) stores buy games from distributors/publishers.

When a distributor is initiating a price drop (like from 49.99 to 29.99) they'll offer the retail store price protection.

Let's say you're ordering your new game at $41 each to sell for 49.99, and the distributor decides to drop it to 29.99. They'll send documentation to the retailer telling them they can now buy this product for 25.00, and they'll give them 16.00 for every unit they still have in inventory. This way, the retailer can drop retail immediately instead of having to wait for all their old inventory at the 41.00 cost to sell through before dropping to the 29.99.

[camoor]

Talk to somebody who works in a jewelry store if you want to talk mark-ups. I few years back my buddy got me a diamond pendent for my wife at cost. Retail $1450. Cost $235. Hate to break it to you but all retail marks their stuff up. Most cases it’s much more then this.

Actually, diamonds and diamond cartels are about the biggest racket out there. I will never buy a diamond because it's not intrinsically valuable (artificial demand by restricting supply) and the diamond cartels have been known actively provoke wars in Africa.

Besides - plenty of stones are more interesting anyway (opals, rubies, sapphires...)

[PsyKyX]

The big money is made in distributing. They are the ones to grab a a game at about $30 (or less) and resell it to stores for $40-45. Just like with diamonds, they get it real low and make a decent resale profit on it. Pharmaceuticals too. You think that Viagra actually costs $8 a pill? Try $0.80.

[greendj27]

Stores generally get their pricing based off a discount structure from a manufacturer. For instance, with scissors a large retailer like Walmart may be getting something like a 50/25/5 discount. Its not important how that's calculated, but basically a ten dollar item would be sold to them for $3.53. A smaller independent store would get a 50/10 discount, or pay $4.50 for the same item. This isn't including any special promotions or allowances, but you can see that larger retailers do get items much cheaper.

Discount structures vary by product types and industries, but the concept is generally the same.

[Cornfedwb]

Pharmaceuticals too. You think that Viagra actually costs $8 a pill? Try $0.80.

How many millions upon millions of dollars do you think they spent on researching Viagra so they could produce it for $0.80 a pill? And how many millions upon millions of dollars do you think they've spent researching other drugs that never actually worked out?

There's more then just the cost of production to figure in to products like that, especially pharmaceuticals.

[MaxBiaggi3]

Pretty much all of us buy clothing with more profit margins that that.

This can vary quite a bit though. For example, thrift store clothing has a huge markup when you consider that most of it was donated for a tax write-off to begin with. :D

[Trakan]

No, its about $41-$44, even for the huge chains. There is very little profit in new games... Thats why they push used games, 3rd party accessories, warranties, magazine subscriptions, membership cards... When theres a price drop, the stores don't take a loss, they get a credit. Thats why the publisher is able to dictate price drops.

What happens when a store like EB drops a game and no other stores/websites do? Polarium for example, went to $10 on ebgames.com, and stayed the same everywhere else. How does that work?