GameStop 2006 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2006 GameStop annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

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., Canada, Australia and Europe 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 3 and PSP, Microsoft Xbox and Xbox 360, Nintendo Wii, 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 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 45 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.
Accessories and Other Products. Video game accessories consist primarily of controllers, memory cards and
other add-ons. PC entertainment accessories consist primarily of joysticks and mice. We also carry strategy guides
and magazines, as well as trading cards. We carry over 350 SKUs of accessories and other products. In general, this
category has higher margins than new video game and PC entertainment products.
Store Operations
As of February 3, 2007, we operated 4,778 stores, primarily under the names GameStop or EB Games. Each of
our stores typically carries over 5,000 SKUs. We design our stores to provide an electronic gaming atmosphere with
an engaging and visually captivating layout. Our stores are equipped with several video game sampling areas, which
provide our customers the opportunity to play games before purchase, as well as equipment to play video game
clips. We use store configuration, in-store signage and product demonstrations to produce marketing opportunities
both for our vendors and for us.
Our stores, which average approximately 1,500 square feet, carry a balanced mix of new and used video game
products and PC entertainment software. Our stores are generally located in high-traffic “power strip centers”, local
neighborhood strip centers and high-traffic shopping malls, primarily in major metropolitan areas. These locations
provide easy access and high frequency of visits and, in the case of strip center stores, high visibility. We target strip
centers that are conveniently located, have a mass merchant or supermarket anchor tenant and have a high volume of
customers.
Operating Segments
Following the completion of the mergers, we operate our business in the following segments: United States,
Canada, Australia and Europe. We identified these segments based on a combination of geographic areas, the
methods with which we analyze performance and the division of management responsibility. Each of the segments
consists primarily of retail operations with all stores engaged in the sale of new and used video game systems,
software and accessories and PC entertainment software and related accessories. These products are substantially
the same regardless of geographic location, with the only differences in merchandise carried being the timing of
release of new products. Stores in all segments are similar in size at approximately 1,500 square feet each.
Segment results for the United States include retail operations in the 50 states, the District of Columbia, Guam
and Puerto Rico, the electronic commerce websites www.gamestop.com and www.ebgames.com and Game
Informer magazine. Segment results for Canada include retail operations in stores throughout Canada and segment
8