Closing Down A Company Business Division With Spite

Closing Down A Company Business Division With Spite

During my web browsing I saw a posting about and how it was closing its video games division due to it not being a profitable venture for the company. The thing that was interesting was how they posted up details explaining why they could not sustain a video games division anymore and they did it without holding back it seems as they basically blasted and criticized on how video game manufacturers only care about large companies. Here was the message that was posted on the site for its customers:

We are closing our video games division?

We are sad to say that we are closing down our video games division. We also feel we owe our customers an explanation:

1. Video Game Industry Does Not Care:

The video game industry only cares about mass merchandisers like Toys-R-Us, Wal-Mart, Best Buy, etc. They completely ignore the needs and wants of the medium to small game retailers. Below is how they do it.

2. Can’t Make Money:

You may not care whether or not we make money, but we cannot continue to pay to sell video games. It is impossible for us to make money selling video games. Video Game Manufacturers set the price using what is called MSRP (Manufacturers Standard Retail Price). Here is an example of the video gaming industry greed: they set the retail price at just $5 above the product cost (buy it for $54.99, sell it for $59.99). When we sell a game we make on average 8.3% gross margin. That does not take into account any of the cost to store the video game or labor to receive/ship an item. The only way we can make a profit on an item is to sell it over the MSRP, but unfortunately we are not allowed to do this. Take a $400 console; we only make $5 on the sale—that is a .01% gross margin (note the decimal point). The game companies make their profit selling to us. We make no profit selling to you.

3. No Price Protection + Games Prices Drop Quickly:

Surprise, Surprise….we do not receive price protection. Price protection is a way to decrease the risk of purchasing a product that may not sell. It puts the responsibility of producing a quality product in the hands of the manufacturer. When something doesn’t sell, the manufacturer reduces the MSRP. If the MSRP falls, price protection would give us our initial investment back. Again, we are not big enough to receive it. We all know how fast games devalue in prices; this is due to the fact that 80% of the games created are crap. So take the fact that we only make $5, now if the price of a game drops $20, we are now losing $15 every sale.

4. No Product Returns:

This one blows our minds; we are not big enough to return products. The game industry releases many bad games, and word of mouth spreads fast to the consumer. All of those bunk games sit on our shelves. If we do end up selling them, we lose more money, due to the lack of price protection. They won’t let us return the bombs. So if we buy a bad title, we are stuck on an industry-induced money losing ride through the land of price drops. Of course, if the video game industry produced quality games, we wouldn’t have this issue.

5. Distribution is Dumb:

Since we are not one of the top game retailers we have to buy through a middle man or distributor. First off, this obviously raises the cost of the product, and second, distribution is horrendous for new releases. We get them 3-4 days after street date. You can buy it from the store before we can ship it to you. This is completely unacceptable to the customers that pre-order games from us.

6. Games Are Better Suited for Brick and Mortar Retailers:

There is not a huge selection of games; it is a new release industry (majority of sales are in the first two weeks of release). Large retailers make money on other products after they get you in the door. We do not; most people come to a website to purchase a video game, not a video game and a bunch of movies. There is also no game catalog market, if you wanted to buy an old copy you would buy it used. So retailers are able to stock all new games, and they can return the ones that don’t sell. Games bring in great foot traffic for physical retailers and they make money elsewhere. EB Games/Gamestop relies heavily on their used business. It is very difficult for online retailers to have an advantage, except for convenience.

7. The Final Reason:

The final reason we killed our video games division is the industry does not let us provide the same level of service that we do with DVDs. We cannot continue to have our good name tarnished when we cannot control how we receive the product. We do not want to lose potential long-term customers due to a poor experience with a video game that is outside of our control. We attempted for the past five years to make it work but decided to call it quits. It breaks our hearts. Everyone at DVD Empire is a huge fan of pc and video games, and we are truly sad to see this division go.

While this does release some interesting behind the scenes information, I’m not sure if this was exactly a great thing to do. With quotes such as “We all know how fast games devalue in prices; this is due to the fact that 80% of the games created are crap” this makes me wonder if the people in charge of the games division ultimately played a bigger role in its demise. For example, I don’t think anyone is forcing them to carry a certain product and they could easily do some research to determine what the market will want ahead of time. Not only that, but the line where they say “Take a $400 console; we only make $5 on the sale—that is a .01% gross margin (note the decimal point)” makes me wonder what kind math they are using in the company. I don’t think that was a typo either as they emphasized the decimal point.

It’s usually easier to complain that a certain company has this or that and so there is nothing one can do, but the funny thing is I’ve actually never really seen this to be true as I’ve seen many times on how companies have been able to turn things around by simply getting people who have the right attitude and creativity to make things happen. Even in reading all that it doesn’t sound like they are taking any accountability at all in what they could have done better to make the games division of their business profitable. I’d say it was definitely possible to turn things around though.


  • gamedepot 2/26/2007

    Sad reality. I know first hand of being the little guy and i am starting the process of closing my doors to my store. I am a brick and morter store which may have some advantages but also some disadvantages like high rent.
    I am in a wonderful new shopping center, have nice polo shirts with my logo, a friendly store atmosphere and no profit to show. For me to make it i need every game to be a hit like Gears of War. I sold about 30 copies in the first 3 days of its release. I got the games for 49.75 and sold msrp for 59.99. Thats a little over 300.00 in profit for one game. not bad. It is bad when other games come out that sit on the self like Superman Returns. I wont get into what is taken off the top for shipping and if someone uses a credit card.
    Bottom line the little guy is nobody in the eyes of alot of people. My theory is since MP3 music is already putting Sam Goody and Tower Records out, that is is only a matter of time before DVDs are downloaded as much as music. Buy the time Playstation 4 is here and the XBOX 520 (whatever its name will be) that games will be downloaded in full. This will not only kill the little guy but also the distributors. Just a theory.

  • Alan Yu 2/26/2007


    Does your business also sell a lot of items aside from just the games themselves such as accessories for the gaming consoles? I think it is safe to say for most retail places selling those extra attachment items like a strategy guide or say an extra controller with a console are one of the ways to remain profitable. Same thing with like a restaurant where they want you to order more drinks or dessert. Just thinking off the top of my head here, back during the Christmas time people were literally paying over $100 for Wii component cables from people reselling them and they retailed for maybe $35 at stores and even that is marked up by quite a bit. That is just an example of course on how usually there is something more that you could offer a customer to make both your business more profitable and at the same time offering them something that they would want.

    Your comment about the Superman Returns is kind of interesting and I’m not sure if you can divulge into that further without getting into any conflicts. I was told by someone that if you want to carry a certain game from specific publishers then in some cases they will require that you also carry another title that they also publish. Was this the case with that game or was it fully your own decision to carry it? Speaking for myself, when I go to a smaller store I kind of expect that they should be more knowledgeable about the products compared to a large chain store and will offer better service. I would view that as a good advantage.

    If everything was to become downloadable, my quick thoughts would be that your business can still possibly adapt to it. Example, for many services even today which require say XBOX Live or Wii Points to download games many people do not have a credit card or are afraid to use it online and so buying point cards from stores will still be in demand. Even those World of Warcraft time cards for example still sell well. Of course I’m just thinking in a general way as I believe in a business you need to adapt to certain circumstances to be able to sustain one.

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