GameStop 2011 Annual Report Download - page 33

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The electronic game industry is cyclical, which could cause significant fluctuation in our earnings.
The electronic game industry has been cyclical in nature in response to the introduction and maturation of
new technology. Following the introduction of new video game platforms, sales of these platforms and related
software and accessories generally increase due to initial demand, while sales of older platforms and related
products generally decrease as customers migrate toward the new platforms. New video game platforms have
historically been introduced approximately every five years. The current generation of video game consoles were
introduced in 2005 and 2006. If video game platform manufacturers fail to develop new hardware platforms, our
sales of video game products could decline.
We depend upon the timely delivery of products.
We depend on major hardware manufacturers, primarily Microsoft, Sony and Nintendo, to deliver new and
existing video game platforms and new innovations on a timely basis and in anticipated quantities. In addition,
we depend on software publishers to introduce new and updated software titles. Any material delay in the
introduction or delivery, or limited allocations, of hardware platforms or software titles could result in reduced
sales in one or more fiscal quarters.
We depend upon third parties to develop products and software.
Our business depends upon the continued development of new and enhanced video game platforms and
accessories, PC hardware and video game and PC entertainment software. Our business could suffer due to the
failure of manufacturers to develop new or enhanced video game platforms, a decline in the continued
technological development and use of multimedia PCs, or the failure of software publishers to develop popular
game and entertainment titles for current or future generation video game systems or PC hardware.
Our ability to obtain favorable terms from our suppliers may impact our financial results.
Our financial results depend significantly upon the business terms we can obtain from our suppliers,
including competitive prices, unsold product return policies, advertising and market development allowances,
freight charges and payment terms. We purchase substantially all of our products directly from manufacturers,
software publishers and, in some cases, distributors. Our largest vendors worldwide are Microsoft, Nintendo,
Sony, Electronic Arts and Activision, which accounted for 17%, 16%, 15%, 13% and 11%, respectively, of our
new product purchases in fiscal 2011. If our suppliers do not provide us with favorable business terms, we may
not be able to offer products to our customers at competitive prices.
If our vendors fail to provide marketing and merchandising support at historical levels, our sales and
earnings could be negatively impacted.
The manufacturers of video game hardware and software and PC entertainment software have typically
provided retailers with significant marketing and merchandising support for their products. As part of this
support, we receive cooperative advertising and market development payments from these vendors. These
cooperative advertising and market development payments enable us to actively promote and merchandise the
products we sell and drive sales at our stores and on our Web sites. We cannot assure you that vendors will
continue to provide this support at historical levels. If they fail to do so, our sales and earnings could be
negatively impacted.
Pressure from our competitors may force us to reduce our prices or increase spending, which could
decrease our profitability.
The electronic game industry is intensely competitive and subject to rapid changes in consumer preferences
and frequent new product introductions. We compete with mass merchants and regional chains, including
Wal-Mart and Target; computer product and consumer electronics stores, including Best Buy; internet-based
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