Online Retailer Drops Games, Slams Sales Model

Online entertainment media retailer DVD Empire recently announced that it is closing its video game sales department due to a variety of factors relating to how the game industry's retail model is structured. According to the notice posted on DVD Empire's official site, the industry model does not provide to small- and medium-sized retailers, due to factors such as extremely thin profit margins, shipments that miss release dates by multiple days, a lack of publisher price control and product returns, and a general lack of support from the industry in comparison to that offered by the DVD industry.

You may not care whether or not we make money, but we cannot continue to pay to sell video games. It is impossible for us to make money selling video games. Video Game Manufacturers set the price using what is called MSRP (Manufacturers Suggested Retail Price). Here is an example of the video gaming industry greed: they set the retail price at just $5 above the product cost (buy it for $54.99, sell it for $59.99). When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale—that is a 1.25% gross margin. The game companies make their profit selling to us. We make no profit selling to you.

Due to these low profit margins, major chains such as GameStop (which currently controls over 22% of the game retail market in the United States) do a sizeable proportion of business in used game sales. Responding to emails informing DVD Empire that its video game sales model was doomed to fail without used games, the company posted in an addendum, "Our reply: this proves our point that small retailers can't make money selling solely new video games." "We knew about the low profit margins when developing our games division, but we strove to streamline operations and succeed within the thin margins. We wanted to provide the service to our customers even in the face of the almost inevitable losses," the company stated. "We could not provide an acceptable level of service from the current infrastructure of the gamesÂ’ distribution system." Finally, as for why the company stated its grievances publicly, it answered, "Seriously, should we just keep our mouths shut about this? We love video games and are pissed at the video game manufacturers for removing our ability to provide good service. We felt we owed our customers an explanation; we did not intend to create a media frenzy." Due to the closure of the department, DVD Empire is currently offering 20% off all games.