“It wasn’t the day I was expecting,” chuckles GAME’s communications director Simon Soffe Monday evening. My interview with the executive was scheduled for earlier in the day, but a sudden hacking scare had caused the retailer to focus on ensuring its customer details weren’t compromised.
So after some banter, and a few questions about the incident (which you can read in our exclusive report here)
, we get down to business and talk about GAME’s plans for the future and where it stands today - both in financial terms and in the eyes of customers.
SPOnG: GAME recently released a statement that said it might miss its EBITDA targets in February. If that’s the case, what does that mean for the future stability of the company?
Well, to explain the situation a bit, we have three covenants, associated with a loan facility that we have with six banks. That was announced in February of last year. Most retailers have loans with banks because, in this industry, the majority of people buy video games at Christmas, and so you need to draw on a bit more money to tide you through the quiet months. The Christmas period is usually a very cash-heavy season, and that’s what retailers use to pay off that loan.
These banks attach covenants to that loan. So there are six banks, signed up on the day that we launched our strategy in mid-February 2011. They agreed to provide our loan facility, and had already seen our strategy and supported it knowing the future industry forecasts.
And they’d certainly seen the historical performance of this industry, which is that the video games industry is very cyclical. There are years of great growth, and there are years which are more difficult. As it stood last February, everyone was predicting that the games market would have a flat year, and that’s what we forecast as well. As a result those conditions had an effect on our performance.
We’ve been very close to our lenders all through the year. We’re in very grown up discussions with them, about the fact that the market is different to what it was last year, and how that affects those covenants. So we’re looking to find a way around that and are having very sensible discussions with them. When we get to a resolution we’ll talk about it, but they signed up to the strategy early on, they still believe in that strategy, it’s just that the markets changed a bit rather than anything at our end.
SPOnG: Last year GAME had big launches for Gears of War 3 and FIFA 12. To hear that 2011 was the cyclical year of underperformance, despite the fact that there are all those AAA games out there... what does that say about the state of the industry as we know it right now?
I think it tells you two things. The success of those launches tells you that some absolutely fantastic games were launched last year, and massive numbers of people wanted to go and buy them at midnight. That is brilliant. There is no lack of innovation in the games market, and we’ve always said that innovation drives growth in that area.
Software wasn’t the big problem in 2011, really - it was in hardware and accessories where the market fell down massively. Last year we had the launch of the Kinect and Move, which had been a real boost to the accessory market, but they weren’t launched in 2011, therefore there wasn’t such a boost.
But I think it tells you what I said before, which is the games market is very cyclical. New hardware drives great growth - you can see from the price tag on the hardware that it’s better for retailers. And as people buy hardware, they buy games to use with it over time as well. The hardware is the sales curve that goes up and down a lot - software is cyclical too, but when you get big new titles like the ones that came out last year, millions of people still come out to buy them.
SPOnG: You obviously don’t have an intention to just ride out these cyclical lows. How are you guys looking to evolve the business, particularly in breaking through into the digital market?
Yeah, I think we can be a part of all of it. At the end of the day, we have to be customers’ fist choice for anything they want for games. So if you look at the last 20 years, that’s generally meant walking into a shop on a high street and picking up either a piece of hardware or a game disc.
Now quite clearly, the world’s changed a lot in the last three or four years. People might want to look at a website for information and then buy it in a store, or vice versa. They can also use their phones and order from mobile apps and things like that.
The things that we outlined in our strategy last February included massively growing our digital business, growing our e-commerce business and looking again at our shops. There are many towns where you might have two or three GAME shops and perhaps one Gamestation as well. The question is, do you need all those shops in that town? Back in 2010 we had nearly 700 stores in the UK, and we’re looking at stripping that down to about 550 by Christmas of 2013.
We’ve closed stores last year and the year before that, and there will be some more that we can close this year - we’ll be looking at locations where more than one shop exists and seeing how we can transfer customers over to just one shop. We’re also looking at what we’re selling in the shops, because that’s got to be relevant too to people who own different platforms.
This time last year, only a few of our stores were selling pre-paid cards for digital games. All of our shops now have that range. We have a dedicated Microsoft range for Xbox LIVE and a dedicated Sony range for PSN. We said in our statement last week that this area of our business has grown by 40% year on year. So there’s a lot we can do to make ourselves relevant, make sure customers still use us to buy all the services that they’re looking for, even if it’s not a disc and a console.