GameStop 2003 Annual Report Download - page 21

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Table of Contents
amount of media advertising in targeted markets. In fiscal 2004, we plan to continue to increase media advertising, to expand our GameStop loyalty card
program, to aggressively promote trade-ins of used video game products in our stores and to leverage our web site at www.gamestop.com.
Merchandise
Our product offerings consist of new and used video game products, PC entertainment software, and related products, such as action figures, trading cards and
strategy guides. We also market selected PC productivity and educational software titles. Our in-store inventory generally consists of a constantly changing selection of
over 5,000 SKUs. We have a central buying group that negotiates terms, discounts and cooperative advertising allowances for all of our stores. We use customer
requests and feedback, advance orders, industry magazines and product reviews to determine which new releases are expected to be hits. Call lists and advance orders
are tracked at individual stores to distribute titles and capture demand effectively. This merchandise management is essential because a significant portion of a game’s
sales are usually generated in the first days and weeks following its release. We also carefully manage product pricing utilizing a tiered-pricing strategy that enables us
to tailor pricing at our stores based on each store’s competitive environment.
Video Game Software.We purchase new video game software directly from the leading manufacturers, including Sony, Microsoft and Nintendo, as well as over 50
third-party game publishers, such as Electronic Arts, THQ Inc. and Activision, Inc. We are one of the largest customers in the United States of video game titles sold by
these publishers. We carry over 1,000 SKUs of new video game software at any given time across a variety of genres, including Sports, Action, Strategy, Adventure/
Role Playing and Simulation.
Used Video Game Products.We are the largest retailer of used video games in the United States. We provide our customers with an opportunity to trade in their
used video game products in our stores in exchange for store credits which can be applied towards the purchase of other products, including new merchandise. We have
the largest selection (over 3,000 SKUs) of used video game titles which have an average price of $16 as compared to $36 for new video game titles and which generate
significantly higher gross margins than new video game products. Our trade-in program provides our customers with a unique value proposition which is unavailable at
mass merchants, toy stores and consumer electronics retailers. This program provides us with an inventory of used video game products which we resell to our more
value-oriented customers. In addition, our highly-customized inventory management system allows us to actively manage the pricing and product availability of our
used video game products across our store base and to reallocate our inventory as necessary. Our trade-in program also allows us to be one of the only suppliers of
previous generation platforms and related video games. We also operate a refurbishment center where defective video game products can be tested, repaired, relabeled,
repackaged and redistributed back to our stores.
Video Game Hardware.We offer the video game platforms of all major manufacturers, including Sony PlayStation 2 and PlayStation, Microsoft Xbox, Nintendo
GameCube, Game Boy Advance and Game Boy Advance SP and Nokia NGage. We also offer extended service agreements on video game hardware. In support of our
strategy to be the destination location for electronic game players, we aggressively promote the sale of video game platforms. Video game hardware sales are generally
driven by the introduction of new platform technology and the reduction in price points as platforms mature. Due to our strong relationships with the manufacturers of
these platforms, we often receive disproportionately large allocations of new release hardware products, which is an important component of our strategy to be the
destination of choice for electronic game players. We believe that selling video game hardware increases store traffic and promotes customer loyalty, leading to
increased sales of video game software and accessories, which have higher gross margins than video game hardware.
PC Entertainment and Other Software.We purchase PC entertainment software from over 40 publishers, including Electronic Arts, Microsoft and Vivendi
Universal. We offer PC entertainment software across a variety of genres, including Sports, Action, Strategy, Adventure/ Role Playing and Simulation. We also carry a
limited assortment of educational, productivity and reference titles.
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