GameStop 2013 Annual Report Download - page 26

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• Customer retention programs, including using our loyalty programs to drive consumer awareness of new retail
concepts and promote new products; and
• The ability to deploy capital in ways that increase shareholder value, finding acquisitions that have high return on
invested capital and will be accretive to operating earnings.
We have entered into a strategic partnership with AT&T and are selling AT&T products and services in our Spring Mobile
and Aio Wireless stores and in some of our Simply Mac and U.S. GameStop stores. We acquired Spring Mobile in November
2013. Spring Mobile has grown from approximately 90 stores at the end of 2012 to over 160 stores today through a program with
two primary focuses. The first of these is opening what we refer to as “whitespace” stores, or new stores in retail locations identified
by either AT&T or Spring Mobile management and agreed to by both parties. AT&T supports the opening of new whitespace
stores by its resellers in an effort to increase the size of its retail distribution channel. The second focus is on acquiring smaller
AT&T resellers. Both of these represent opportunities for strong growth in the next two years for Spring Mobile.
AT&T introduced the Aio Wireless brand in 2013 to compete in the pre-paid wireless market. The pre-paid sector of the
wireless market is experiencing higher growth than the traditional post-paid market. Pre-paid customers are generally interested
in paying for wireless service on a month-to-month basis without a longer-term contract. We began opening Aio Wireless stores
in a few markets in November 2013. We also expect to expand our prepaid stores with AT&T under the Cricket brand following
AT&T's acquisition of Leap Wireless.
Simply Mac has grown from 8 stores in the fall of 2012, when we acquired 49.9% of the company to 23 stores as of the end
of fiscal 2013. We completed the acquisition of Simply Mac in November 2013. Simply Mac’s primary focus for store expansions
is in U.S. markets which generally do not have the size and demographics to make them attractive for an Apple owned store.
Examples include Midland, Texas and Springfield, Missouri. We intend to continue to open new Simply Mac stores in fiscal 2014
and the coming years.
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 pre-
owned video game products, and related products, such as video game accessories, headsets and strategy guides, as well as new
and pre-owned mobile devices such as tablets, phones and music players. Our in-store inventory generally consists of a constantly
changing selection of over 5,000 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,
pre-orders, industry magazines and product reviews to determine which new releases are expected to be hits. Pre-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.
New Video Game Hardware. We offer the video game platforms of all major manufacturers, including the Sony PlayStation
4, PlayStation 3, PlayStation Vita, Microsoft Xbox One, Xbox 360 and Kinect and the Nintendo Wii U, Wii and DS line. 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. We are in a new
console cycle beginning with the Nintendo Wii U launch in November 2012 and the launches of the PlayStation 4 and Xbox One
in November 2013. 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.
New Video Game Software. We purchase new video game software from the leading manufacturers, including Sony,
Nintendo and Microsoft, as well as all other major 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 700 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.
Pre-owned and Value Video Game Products. We believe we are the largest retailer of pre-owned video games in the world.
We provide our customers with an opportunity to trade in their pre-owned 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 pre-owned and value video game titles which have an average price of $21 as compared to an
average price of $44 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. From time to time we have purchased value-priced, or closeout, video game products
from publishers, distributors or other retailers and we can resell these products for gross margins that are more similar to pre-