GAME is getting crushed again just 3 years after it collapsed

GAME Digital — the High Street video game chain bought out of administration in 2012 — is struggling once again.

The retailer put out a profit warning on Wednesday, just days before Christmas, revealing its business is being battered pretty much across the board.

It’s the second Christmas profit warning in as many years.

Here’s the damage:

  • Group Gross Transaction Value down 6.7% at £466.8 million ($693.6 million);
  • Console sales down down 20.3%;
  • UK& Gross Transaction Value down 11.4% at £353.5 million ($525.2 million);
  • Trading margin down 4.8% to £73.9 million ($109.8 million);
  • Underlying operating costs up £5 million ($7.4 million) to £97 million ($144.1 million).

In short, GAME’s business is getting more expensive as sales both sales and margins — the average profit made on each item sold — are falling.

The company blames the UK market, quoting figures showing video game sales overall are down 13.5% this year. GAME also says there’s been an “unexpectedly steep decline in Xbox 360 and PlayStation 3 content sales.”

GAME’s CEO Martyn Gibbs says:

The trading conditions in the UK video games market have been challenging. The switch over from the older gaming formats to PlayStation 4 and Xbox One software has impacted profitability across the UK market. The extent of the impact of this switch over has only become apparent in December which has been compounded by lower year on year high street and shopping centre footfall.

The only bright spot? A 91.8% jump in revenue of pre-owned phone and tablet sales to £16.4 million ($24.3 million). But that’s a new business line, hence the steep growth, and totally different from its core proposition of flogging video games.

Anyone who remembers GAME’s recent history should be raising eye-brows. The company fell into administration in 2012, with the BBC reporting at the time that it was hit by “hit by competition from online-only retailers.”

Controversial buyout firm OpCapita, which was hauled over the coals for profiteering from the collapse of electrical retailer Comet, bought GAME out of administration.

The chain ended up in the hands of another controversial fund — Elliott Advisors, a UK subsidiary of US hedge fund Elliott Management that has been criticised for turning the screws on Argentina over bond payments.

Elliott floated GAME in June 2014 at a value of £340 million ($505.2 million), netting Elliott an estimated £101 million ($150 million) at the time, according to the Financial Times.

GAME did its best to convince investors it had changed its spots, adding a “Digital” to its name and emphasising its online retailing credentials.

But just over 6 months later, a Christmas profit warning that sent shares tumbling over 50%. Elliott had taken more money out of the business just weeks before that profit warning.

Here’s GAME’s share price chart since its float (note, trade in London has not yet started.)

GAME floated at £2 a share back in 2014. Those who bought in then are basically back where they started and likely to fall underwater when trade commences on Wednesday.

The truth is the trends in the market are moving against GAME, with people increasingly buying video games online if they buy them in physical form at all — you can just download them straight to your internet connected console.

But that’s the same problem GAME faced back in 2012 when it went under. The question is, what exactly did those who owned it when it was private do to prepare it for this new retail landscape? GAME is hoping investing in live video game events, known as eSports, will help but that’s a long term bet and a move that has come since the float.

Elliott and its partners managed to convince investors back in 2014 that GAME was now “Digital” but it’s increasingly clear that it’s not.


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