Tuesday, 27 March 2012

Game Group & What it means for Retail

Another (less than iconic this time) retailer has gone bust. Game group sold console games to chavs and had two brands, GAME and Gamestation which cannibalised each other's sales. The problem is that even the most enormous, PC-challenging game can easily be delivered over the Internet, and there is no tactile element which demands you have to feel the merchandise before you take delivery. So there is no reason to own a shop to sell games. A website can be run with a small call-centre, and half a dozen software engineers. There is simply no need for a vast estate of shops with staff, managers, cleaning contractors, rent, rates and theft, the cost of which must be built into the price of the product, meaning you can NEVER compete with online.

Just as Manufacturing jobs are vanishing while productivity is going up, the same is true of retail. This is how an economy grows: all those people employed doing one thing - in this case, shop assistants and managers, are freed to do something else, sell coffee for example. You can argue retail is a leisure activity, but it's an expensive one, and so people mooch around shops, then go home and buy it, whatever it is, cheaper online. If you're selling a product of interest mainly to spotty boys who wear hooded tops, they will take the opportunity to nick the merchandise. Retailers will simply not regard providing a shop window and somewhere for youths to hang out as a viable business model, and will close.

High-streets must therefore shrink. We simply don't need as many shops as we used to, just as we don't need as many factory workers or farm-labourers.

If you're going to invest in the business, invest in those with the scale to dominate their product area, and the logistic nous to get objects to people's homes in less than 24 hours. Tesco, for example was the first business to make money out of online Grocery in the world. E-bay, Amazon and Wiggle are all big players in their niche. And there is a real opportunity in a privatised Royal Mail, which is going to be responsible for all those "fulfillments" in the "last mile".

The future of e-fulfillment

Online takes 10% of the UK retail spend and it's growing fast. Everyone will laugh, but your humble postie is the key to making online retail work, and the packages will render the domestic mail network as profitable as the business one (perhaps more so, as most "business" mail is advertising junk). If there is an IPO of the Royal Mail, depending on the price, I will be investing.



6 comments:

Amy said...

Hahah, loving the postman pat photo at the end.

JimmyGiro said...

As a PC games player, I'm surprised the retail store GAME, lasted as long as it did. I suspected it was some kind of inefficient money laundering scam.

I believe that the worldwide turnover for the electronic games industry, dwarfs that of the music industry - maybe you economics guys can refute or confirm that - and that in the last few years, the game producing software companies are moving away from publishers like Ubisoft, and Electronic Arts, etc, and choosing direct sales to the public, or slightly indirect through organisations like Steam, a downloading system. So even big online stores like Amazon, will be challenged by this trend, unless they too expand into 'direct downloading' modes for music and software. I.e. not good for postie, unless of course, the Royal Mail sets up its own huge server hubs, for the purpose of electronic posting.

B.K. said...

What? You don't have UPS? :)

Jackart said...

JimmyGiro, of course for Games and Music (and probably books), direct download will be the main channel, so there will not need to be physical delivery. But for everything else, there are THINGS which need to be delivered.

JimmyGiro said...

Indeed Jackart, things still need to be moved, and Parcelforce is the only aspect of the Royal Mail, that makes a profit. And because it is carrying the unprofitable parts of RM on its back, then the rates offered by Parcelforce are higher than they need to be.

Parcelforce may break away from RM in order to save itself; with the remainder of RM to be flogged off to people who think letter posting still has a future. If PF cannot break free soon, then it will be overtaken by competitors, who aren't shackled to the RM loss making Leviathan.

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