Circuit City Tests Used Game Market

In his latest investor note, Lazard Capital Market's Colin Sebastian brings word that retailer Circuit City is testing the waters of trade-ins and used game sales both online and in select stores. Sebastian notes that the current pre-owned sales on Circuit City's site are limited compared to that of online auction house eBay, with, on our check, just 20 PS2 and PS3 titles, seven PSP titles, 18 Xbox and Xbox 360 titles, and six GameCube and Wii games, compared to some 80,000 via eBay. Prefacing the fact that used sales are a "more profitable, but more demanding category," Sebastian points out that Best Buy experimented with used sales as recently as 2006, with "limited success." Nevertheless, Sebastian says that "sales of used video game products generate more than $1 billion in revenues annually in North America, at close to 50% gross margins," with used sales accounting for as much as 25 percent of specialty store revenues. Sebastian concludes, though, that the move by Circuit City, whose pre-owned pricing appears to match that of used sales at specialty retailers with an average of $5 off a recently released title, presents only a limited near-term threat to stores like GameStop, which currently dominates the used game market. GameStop's "experience and track-record with used product sales, broad inventory of new and used video games, and its core video game consumer base," Sebastian says, keeps it comfortably ahead of any competition.