GameStop 2009 Annual Report Download - page 22

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enhance our market leadership position in the video game industry and in the digital aggregation and distribution
category.
Operating Segments
We identified our four operating segments based on a combination of geographic areas, the methods with
which we analyze performance and how we divide management responsibility. Segment results for the United States
include retail operations in the 50 states, the District of Columbia, Guam and Puerto Rico, the electronic commerce
Web site www.gamestop.com and Game Informer Magazine. Segment results for Canada include retail and
e-commerce operations in stores throughout Canada and segment results for Australia include retail and e-com-
merce operations in Australia and New Zealand. Segment results for Europe include retail and e-commerce
operations in 13 European countries.
Our U.S. segment is supported by distribution centers in Texas and Kentucky, and further supported by the use
of third-party distribution centers for new release titles. We distribute merchandise to our Canadian segment from
distribution centers in Ontario. We have a distribution center near Brisbane, Australia which supports our Australian
operations and a small distribution facility in New Zealand which supports the stores in New Zealand. European
segment operations are supported by six regionally-located distribution centers.
All of our segments purchase products from many of the same vendors, including Sony Corporation (“Sony”)
and Electronic Arts. Products from certain other vendors such as Microsoft and Nintendo are obtained either
directly from the manufacturer or publisher or through distributors depending upon the particular market in which
we operate.
Additional information, including financial information, regarding our operating segments can be found in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this
Annual Report on Form 10-K and in Note 17 of “Notes to Consolidated Financial Statements.”
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 trading cards and
strategy guides. Our in-store inventory generally consists of a constantly changing selection of over 4,500 SKUs.
We have buying groups in each of our segments 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 Hardware. We offer the video game platforms of all major manufacturers, including the Sony
PlayStation 2 and 3 and PSP, Microsoft Xbox 360, the Nintendo Wii and DSi. 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 dispropor-
tionately 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.
Video Game Software. We purchase new video game software from the leading manufacturers, including
Sony, Nintendo and Microsoft, as well as over 40 third-party game publishers, such as Electronic Arts and
Activision. We are one of the largest customers 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.
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