Perhaps Best Buy Inc. (NYSE: BBY) is looking to make video games a centerpiece of its product offerings. Video game rival Gamestop Corp. (NYSE: GME) could be a potential takeover target for the largest consumer electronics retailer in the U.S. Best Buy recently stated that game sales is a focus area, so there is more truth to this rumor than not.
After all, retailers will use every trick in the book to get feet inside the doors. So many products in retail are loss leaders, but they get traffic inside, and statistically that translates into sales for a certain portion of customers. By buying Gamestop, Best Buy would become one of the premium video game retailers in the U.S., causing even more foot traffic to creep inside its brick-and-mortar locations. This has been a rumor in the past, but it makes sense now more than ever.
There's no overlooking the roughly $4.2 billion it would cost to buy up Gamestop, and Best Buy doesn't have that much cash. It could leverage up itself or do a stock swap -- either would be costly and it would not make for a return any time soon. Although video game sales have plummeted during the recent recession, there's no proof sales will stay there. It's a gamble for Best Buy, that's for sure. But, if it brings traffic into stores, it may just be worth it as consumers start spending again.
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
9-15-2009 @ 8:45PM
Sean said...
I don't agree this would be a good acquisition. If you look at the future of video games, I don't see retail as a way forward. Already, Microsoft, Sony, and Nintendo have digital distribution platforms for their consoles. Right now they are taking baby steps into this space as they do not want to upset their retail partners but the writing is on the wall. The majority of PC games are already being bought and sold through digital services such as Steam.
For Gamestop and its investors, selling out now would be a great idea but for Best Buy not a smart buy.
9-16-2009 @ 9:42AM
e.krabs said...
I wonder if this is truly a good move for Best Buy? They can't afford it and they already sell the same product line as Game Stop. I don't think one can even argue distribution channels because they're occupy similar spaces (that I know of) and would just poach each other's sales. Plus, there's also online.
What GameStop does do that Best Buy doesn't, and makes it as lucrative as it is, is in used game re-sales. But that doesn't mean Best Buy can't adopt a similar strategy. There's no need acquire Gamestop to do this.
I realize this may be only a rumor, but even if it's true, it is not a trade I would want to get into.
9-22-2009 @ 9:32PM
MT in FL said...
I honestly don't think that it is in Best Buy's interest to acquire this company. GameStop has a rather hideous reputation among its former employees, for starters. In order to salvage the brand, everything currently related to the name would have to be gutted. They may as well start from whole cloth and learn from GameStop's mistakes.