BEST BUY TO TEST VIDEO GAME KIOSKS

Best Buy Co. , which began testing the sale of used videogames in some of its Canadian stores a year ago, is expanding the effort to the U.S.

The largest U.S. consumer electronics retailer by sales is testing a kiosk-based model in several of its Dallas and Austin, Texas, stores starting this week, Chief Marketing Officer Barry Judge said Tuesday.

The kiosk scans used games to make sure they work, then immediately issues a voucher redeemable for a Best Buy gift card that can be used for anything in the store, Mr. Judge said in a posting on his blog.

"We'll also be testing the sale of used games in those stores, and some of the kiosks will even rent games and movies," Mr. Judge wrote.

Mr. Judge and other Best Buy representatives couldn't be reached immediately for comment.

Shares of Best Buy recently traded down 55 cents at $32.89. Shares of GameStop Corp., which has held a virtual monopoly on the U.S. used videogame business for years, fell as much as 7% after the news before recovering to change hands recently at $21.58, down 1.7%.

"Clearly, it's why [GameStop's] down," said Wedbush Morgan analyst Edward Woo, adding that the Grapevine, Texas, company has about 90% of the U.S. used videogame market.

"The risk is not one or two kiosks in Dallas, because by the numbers, that's not going to affect [GameStop's] business," Mr. Woo said. "The risk is that the couple of kiosks go into [Best Buy's] 900 plus stores."

A GameStop representative declined to comment specifically on Best Buy's test, but company spokesman Chris Olivera indicated GameStop's more than 6,000 stores have advantages over self-service ventures.

"Trading in used games and consoles is a highly-assisted activity," Mr. Olivera said in an e-mailed statement. "We are very confident in our model that allows for our expert associates to help consumers trade in product, a fact not addressed with a self-serve process."

Used videogames make up as much as a quarter of GameStop's revenues but at least half the company's profits, Mr. Woo said. Importantly, profit margins on used videogames are around 50%, far higher than the 20% margins on game software and 5% margins on gaming hardware, he added. Wedbush Morgan estimates GameStop controls about 90% of the U.S. used video game market.

But the number of companies trying to tap the market keeps rising, especially as video games are considered a cheap form of entertainment for recession-weary Americans.

Internet retailer Amazon.com Inc. in March introduced a used game trade-in program that allows shoppers to swap old video games for an Amazon gift card, stoking fears prompted by Toys "R" Us Inc.'s test of a trade-in program.        Wal-Mart Stores Inc. is also testing kiosks that accept used games.

Mr. Woo said there's no evidence that any of the tests are hurting GameStop's results at this point.

Courtesy of an article dated June 24, 2009 appearing in The Wall Street Journal