GameStop 2011 Annual Report Download - page 24

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; however, we also sell
downloadable software and subscription, time and points cards which do not involve physical product. Our
product offerings consist of new and used video game products, PC entertainment software, and related products,
such as video game accessories and strategy guides, as well as new and used mobile devices such as tablets,
phones and music players. 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 3 and PSP, Microsoft Xbox 360 and Kinect, the Nintendo DSi, DSi XL, 3DS and Wii. 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.
Video Game Software. We purchase new video game software from the leading manufacturers, including
Sony, Nintendo and Microsoft, as well as over 50 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 800 SKUs of new video game software at any given time across a variety of genres, including Sports,
Action, Strategy, Adventure/Role Playing and Simulation. In 2010, we began selling digitally downloadable
add-on content developed by publishers for existing games.
Used Video Game Products. We believe 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 (approximately 3,100 SKUs) of used video game titles which have an average price of
$18 as compared to an average price of $39 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 generally 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
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