GameStop 2014 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2014 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 114

  • 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

Merchandise
Substantially all of our revenues are derived from the sale of tangible products; however,wealso 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, interactive toys and licensed
merchandise 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 aconstantly 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 asignificant portion of agame’ssales are usually generated in the first days and
weeks following its release.
We categorize our sale of products and services as follows:
New Video Game Hardware. We offerthe videogameplatforms of all major manufacturers, including the Sony PlayStation
4, PlayStation 3, PlayStation Vita, Microsoft Xbox One, Xbox 360 and Kinect and the Nintendo WiiU,Wii andDSline. 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. Videogamehardwaresales are generally
driven by the introduction of new platform technology and the reduction in price points as platforms mature. We areinanew
console cycle beginning with the Nintendo WiiUlaunch in November 2012 and the launches of the PlayStation 4and 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 600 SKUs of new video game software
at any given time across avariety of genres, including Sports, Action, Strategy,Adventure/Role Playing and Simulation.
Pre-owned and Va lue VideoGameProducts. We believeweare 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 3,000 SKUs) of pre-owned and value video game titles which have an average price of $23 as compared to an
average price of $45 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 auniquevalue propositionwhich 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-
owned video game products than margins on new software. We refertothese as "value" products.These programs provide us
with an inventory of pre-owned and value 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 pre-
owned and value 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 Accessories. Videogameaccessories consist primarily of controllers, gaming headsets, memory cards and other
add-ons for use with video game hardware and software.
Digital. Theproliferation of online game play through Microsoft Xbox Live, the PlayStation Network and PC gaming websites
has led to consumer demand for subscription, time and points cards (“digital currency”) as well as DLC, for existing console video
games. We sell awide variety of digital currency and we have developed technology to sell DLC and full-game downloads in our
stores and on our U.S. website. We believeweare the worldwide leading retailer of digital currency sales and the sale of DLC for
Xbox Live and the PlayStation Network. We believe that we are frequently the leading seller of DLC for most major game titles.
Mobile and Consumer Electronics. Our mobile and consumer electronics business consists of the sale of new smart phones,
tablets, headphones and accessories and buying, selling and trading of select pre-owned smart phones, tablets and MP3 players
in amajority of stores in our U.S. and international markets. Beginning in November 2013, this product category also includes
the revenues generated in our Spring Mobile managed AT&T and Cricket Wireless branded stores and Simply Mac stores from
the sales of wireless products and services and Apple and other consumer electronics.
Other Products. We purchase PC entertainment software from many of the largest PC publishers, including Electronic Arts,
Take Twoand Activision. We offer PC entertainment software across avariety of genres, including Sports, Action, Strategy,
Adventure/Role Playing and Simulation. We also carry strategy guides, magazines and gaming-related toys, such as Amiibos from
9