Game Digital already came back from the brink after going into administration in 2012, but its prospects have grown bleaker over the past year. The video games chain had the dubious honour of being included in MT’s biggest retail losers of Christmas 2014, after issuing a profit warning. Not the sort of thing you’d like to become a habit, but unfortunately it’s just issued another one after disappointing sales at the start of the festive trading period.
Many retailers aren’t enjoying a buoyant Christmas time, but Game’s latest figures are pretty dismal. Revenues fell 6.7% to £466.8m in the 21 weeks to 19 December and the retailer now expects to report half-year underlying earnings of £30m – compared with £43m for the year before. Investors were not impressed. Game’s shares dropped more than 40% to an all-time low of 119p this morning, less than a third of their peak in november 2014.
Credit: Yahoo Finance
‘The trading conditions in the UK video games market have been challenging,’ said Game Digital’s chief executive Martyn Gibbs, who is now a hot contender for the understatement of the year award. Total sales for the video games market are down 13.5% year-on-year. It raises the question as to whether there’s still a place for selling video games on the high street, with the transition to digital downloads of computer games.
Numerous factors have caused Game’s woes according to Gibbs. ‘The switch over from the older gaming formats to PlayStation 4 and Xbox One software has impacted profitability across the UK market,’ he said.
Demand for new consoles hasn’t been enough to offset what has been ‘an unexpectedly steep decline’ in games for older models. ‘The extent of the impact of this switch over has only become apparent in December which has been compounded by lower year-on-year high street and shopping centre footfall,’ Gibbs added.
Begbies Traynor just announced nearly 25,000 UK retailers were suffering ‘significant financial distress’ at the time of the year they’d hope to be bringing in more sales. While most of those are small and medium-sized firms, Game’s latest profit warning shows the outlook isn’t smooth sailing for bigger players either.
The one bright spot for Game was a 91.8% jump in revenue for pre-owned phone and tablet sales to £16.4m, but that won't make much of a tent in its total takings. Gibbs said that despite the market challenges, Game 'has continued to deliver significant growth from new format content and new categories such as licensed merchandise and pre-owned mobile phones and tablets, and we continue to prioritise these areas as well as growing our Multiplay business'.
Game shelled out £20m for gaming event business Multiplay earlier in 2015. It organises 150 gaming events in the UK, with a focus on the increasingly popular competitive gaming offerings of eSports.
Considering pre-owned phones and tablets is a new business line and far removed from its core offerings, this does though, raise concerns as to how much of a revamp Game will need to undergo to maintain its current high street standing.