Is Michael Pachter right to call the UK games retail market "a joke?"

Michael Pachter is a videogame and tech startup industry for Wedbush Securities who voices his opinions and predictions on the games market. He also presents his own Q&A show on Gametrailers.com. In a short interview with Digital Spy he blames the recent spate of bankruptcies on retailers which he attributes to them failing to make a profit on game sales. However much as I enjoy watching his show I have to say Pachter's assertions are groundless and not based on facts.

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via www.product-reviews.net

He says to Digital Spy:

"The UK games retail market is a joke, with retailers pricing below cost to drive traffic." "That's great for consumers, but retailers can't make any money on games, hence the bankruptcies of GAME, HMV and Blockbuster, and the refusal of GameStop to expand into the market." ... "Retail needs to make money to exist, and games retail in the UK doesn't make money."

Pachters argument is that retailers do not make a profit on game sales, knowing something of profit margins from retail management this is incorrect and it seems his opinion is based on a half-truth. The big retailers sell games at a high enough price to make a profit. The only extreme price-cutting was during previous Christmas sales periods when all the major retailers would, on launch day only, sell a new Call of Duty or FIFA Football game for a very cheap price to get people into their stores. Where these games would ordinarily retail for £44.95, the retailers would sell them for around £24.99 meaning they would make minimal profit, but certainly not a loss. However Christmas 2012 saw a change and with many retailers abandoning these offers, although Tesco's offered a cheap launch day price for CoD: Black Ops II if Xbox Live points was purchased at the same time.

Blockbuster was primarily a rental business. Their profits were affected by the rise in the competitive price and convenience of streaming services like LoveFilm and Netflix. On average it cost £4.00 to rent a single movie from Blockbuster, whilst a month on Netflix cost £5.99. As more consumers obtained devices that allowed streaming Blockbuster lost business.

As for HMV their business was more than just games, it was DVDs and music CDs. Physical media sales was inevitably affected by the rise of iTunes and PC & console digital purchases. HMV also charged full RRP prices that were higher than mail order but also higher then some other high street retailers.

GAME were a profitable business, but their mistake was to buy rival retailer Gamestation. They prioritised market share over profits which lead to them having two stores in very close proximity to each other, which led to their administration problems early last year before its purchase and relaunch by OpCapita.

The closures of GAME, Blockbuster and HMV have changed the face of the UK high street. Their failures were due to several factors including unwise business decisions and the recession. Whilst Pachter has poured scorn on the British retail market a big factor in these store closures is the rise of digital product sales. Rather then being an isolated incident, in countries where there is a mature internet infrastructure these type of closures are likely to be repeated.

Source: Digital Spy