GameStop 2005 Annual Report Download - page 16

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•Increase Sales of Used Video Game Products. We will continue to expand the selection and availability of
used video game products in our U.S. and international stores. Our strategy consists of increasing consumer
awareness of the benefits of trading in and buying used video game products at our stores through increased
marketing activities. We expect the continued growth of new platform technology to drive trade-ins of
previous generation products, as well as next generation platforms, thereby expanding the supply of used
video game products.
•Increase GameStop Brand Awareness. We intend to increase customer awareness of how the adoption of
the best practices of Historical GameStop and EB will benefit our customers. In connection with our brand-
building efforts, in each of the last three fiscal years, we increased the amount of media advertising in
targeted markets. In fiscal 2006, 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 sites at www.gamestop.com and www.ebgames.com.
Merchandise
Substantially all of our revenues are derived from the sale of tangible products. 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. Our in-store inventory generally consists of a constantly changing selection of over 5,000
SKUs. We have buying groups in the U.S., Canada, Australia and Europe that negotiate terms, discounts and
cooperative advertising allowances for the stores in their respective geographic areas. We use customer requests and
feedback, advance orders, industry magazines and product reviews to determine which new releases are expected to
be hits. 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.
Video Game Software. We purchase new video game software directly from the leading manufacturers,
including Sony Computer Entertainment of America, Nintendo of America, Inc. and Microsoft Corp., as well as
over 40 third-party game publishers, such as Electronic Arts, Inc. and Activision, Inc. We are one of the largest
customers in the United States of video game titles sold by these publishers. We generally 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 world. 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, primarily new merchandise. We have the largest
selection (over 4,000 SKUs) of used video game titles which have an average price of $13 as compared to $34 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 refurbishment
centers in the U.S and Canada, 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 PSP, Microsoft Xbox and Xbox 360, Nintendo DS, GameCube and Game Boy Advance SP. We
also offer extended service agreements on video game hardware and software. 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
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