Q&A: GameStop's McKenzie On The Market In 2009

Specialty retailer GameStop controls a large portion of the game software market, rivaled only by behemoths like Wal-Mart in the U.S., and it's only getting wider, as the company continues to expand both inside and outside of North America. To find out more about this vital part of the game industry, Gamasutra was able to speak with Bob McKenzie, senior vice president of merchandising, following the recent joint GameStop/Capcom Resident Evil 5 launch event in San Francisco. Subjects discussed in the interview, which was previously extracted in two parts on the site, include the effect of the economy on sales, why the DSi is "priced right", why Killzone 2 "exceeded expectations", and why the industry is "going to do more with less SKUs" in 2009: How do you feel about your performance compared to the rest of the retail sector, which is extremely soft right now? Bob McKenzie: I'm just very excited we were able to have a very good year, and being in the entertainment business. It's a pretty good time to be there right now, with the economy softening and people trying to get more entertainment value out of staying at home, trying to watch their budgets a little more. I think we obviously appear to be in a pretty good position where we have a great value message. It helps too to be having multiple formats, where you've got the good handhelds with both the PSP and the DS. Now with the DSi coming out, I think that's going to help too. Even with that, [Nintendo has] a $179 retail on that, so it's a $30 upcharge from the original DS Lite. What do you think about that? BM: I think they've got the value there. It's great; I think it's priced right. They've done a good job. Seeing the demo of that thing really makes you realize how much different it is from the original DS Lite. My daughter's still hooked on hers... Having the DSi losing the ability to play your GBA games on it -- I don't think that the consumer is really going to look at that as a negative. Do you really carry GBA games anymore? BM: Well, we do have them within our used area. But not even probably that many compared to years past, I would guess. BM: Yeah, it's definitely tapered off. But again, there's such a big library and such a big install base there that that's really where the consumers own those -- they're like, "Well, I want to be able to play 'em." But I think we saw a similar thing with the launch of the PS3, obviously. Initially that launched with backwards compatibility, and then some of the variations of the different size configurations weren't backwards compatible. The further you get from that launch, I think, the less impactful it is to the consumer, because they feel they've upgraded their library over time. With the DSi I think it's a unique opportunity too, because they're not coming out with DSi-only games. Though they may in the future. BM: Yeah, they could. That's a good point; they definitely could. Now, the DSi does open up a downloadable market on that console that didn't previously exist, though. BM: Yeah, that's true. But it does on WiiWare, I guess, so they have that out there. It's a good opportunity -- the way that they've structured that, where the consumer can get a hold of that back catalog library and have that selection and that option to go back and play some of the classic titles and some of the older games. So you look at it as more of a value-add for consumers that strengthens the products. Even though you can't make any revenue off of any download games that are sold, you still see it as more of a value-add. BM: Definitely. Ultimately, I think it's a good option for the consumer. They're able to expand their libraries; they're able to reach out and have a choice of a selection of broader types of games -- and some of the games that they probably have grown up with. That's an exciting thing even now with the last two launches now with Capcom; with Street Fighter IV, there was such a time gap between the last launch and this one, and obviously the consumer -- they're still there. They're still as rabid a fanbase as they were when they launched Street Fighter III. And with Resident Evil 5, I think we're going to see the same thing tonight [Ed. note: the interview was conducted March 12] and through the weekend and the next month. I think Capcom has done a great job of really staying in touch with their consumer and continuing to portray that quality game development. When they do come out with a new title like this, even though it might be 10 years later, that consumer's still there to support it, and they want to come and take advantage of that upgrade in the game. I don't know if you might have not seen this, but there's some news coming out of England that, at least over there, Nintendo's raising the wholesale price of the Wii. Is that something that you foresee? Obviously you guys do business in Europe, and I think it's just England because the pound's weakening -- is their justification. Do you see that as a trend in these economic times with currency devaluing, the yen being strong? BM: It's a good question. I don't have a good perspective on the international [business]. Like you mentioned, that does make sense because the pound is weakening, that they would take an adjustment like that. I guess I would see that as a pretty isolated opportunity and hopefully not something that we would see roll over with the U.S. market anyway. I don't think they need to make the price move down either, like on the Wii. I think finally we've gotten to the point where we're going to be able to get a real good run rate on this thing. You know, three years later, we finally have enough inventory on the shelf, and we've got a couple of weeks in supply of this. That's good because we can finally determine and gauge it before we get into the fourth holiday season. There've been enough games -- last year, they launched 170-plus games for the Wii -- so there's a good enough install base with a lot of third-party support and a lot more to come. They keep developing some new and innovative products; Wii Fit last year was great. Again, we weren't sure if that was really going to be successful or not, and to be honest I don't think Nintendo really knew how successful that would be. Shortly after it came out and I had it at home, one of our neighbors knocked on the door one night; she wanted to come in -- she knew we had it, and she said she wanted to see if her kids would like it -- and five minutes later she's up on top of the thing doing the soccer game, kicking soccer balls around. At that point I was looking at it going, "That's pretty ingenious, where it has that much of a pull to get somebody off of the couch like that." So it's cool. I think EA Active coming up is again another one of those innovative products where that's going to help to just continue to drive that type of innovation along on that system. The Beatles: Rock Band is going to be a $60 Wii SKU; what do you think about a $60 Wii SKU? BM: It's going to be interesting, but again seeing the demo of that product -- I'm not a huge Beatles fan, but after I saw the demo and the Harmonix band got up there and they did that for us, I was ready to go out preorder the $250 SKU. It's just got that much value to it, and I think it's entertaining because it's not just another guitar product or another version of Rock Band; it's actually got some of the cutscenes and some of the added material from the band and from that era. That kind of adds the value when you're looking at, say, the $60 or even stepping up to a $250 product for the complete kit. That's a big retail ring, but I think they got the right combination of putting a quality product together with some added value -- additional content -- and really making that compelling for the consumer. You're doing tremendous volumes of some games on the Wii, but are you happy with how the market's doing overall? It seems like we just had Street Fighter and now we're getting Resident Evil 5. Neither of these games are going to be as big as Wii Fit is in the end, but it still seems like there's a gap between the big hits. BM: Initially I really thought we were going to see a large gap between big hits in 2009 -- I was quite concerned about it. Going into [Sony marketing conference Destination PlayStation], I think I came out with a whole different perspective. Even though publishers are really focused on having to tighten their belts too, and some people having to tighten their staffs, the theme that we came out of there with -- that we heard from more than one vendor -- was that they're going to do more with less SKUs. At the end of the day, as long as we can get that spread out and not have it all lumped into the fourth quarter, I think it's great for the publishers along with the consumer and the industry. It's like these two big games, Street Fighter and Resident Evil, having those launch in February and March is great because it helps to spread that sales cycle out. This is just like last year when we saw Grand Theft Auto IV launch in April, and obviously they got a benefit again going into the holiday and increased traffic. So they really had two launches of that product last year. Is that something that you encourage? I think we all see the limitations in that at this point -- for example, EA might have had stronger traction on Mirror's Edge if they had put it out when it wasn't competing with so many triple-A games. BM: Yeah, I think you're exactly right. I think that's a good point, and like I said, coming out of DPS, it was encouraging because it wasn't necessarily us always bringing that up. It was companies like EA saying, "We realize we made a mistake. We had too many titles in one quarter, and we are spreading out our lineup of product." They reduced it, and they're spreading it out; they have 25% of their lineup that they're going to ship in Q1. So I think you're right. I think they realized that you're competing with your own products when you have too many of them coming out at the same time. Speaking of coming out of Destination PlayStation, how do you feel about the PlayStation business right now in 2009? BM: Well I think obviously they're at the higher end of the market, and in this economic time it's probably a tough thing. But they've definitely got the capabilities built into that system, now that we've gotten through the Blu-ray wars and that's been defined. I think that home market's going to continue to help them as well, because it is a great system, and there's a lot of value there. Having a different price point for the consumer -- one with a bundled game, one without -- I think, if you could look back at it and say, that $499 system coming out with the timing that it did last year, but nobody could have seen what was going to happen with the economy. It was too far down the road before they could make that decision. Still, I think in a non-economic time like we're at now, it's still a good value for the consumer with the other capabilities that are built into that system and some of the functionality where it's got the cross-capability with the PSP. It's just tough to be at the price point where they're at, with the Xbox at $199 and $299 -- driving a lot of volume with that move they were able to make in September. Is demand for the PS3 soft compared to what you'd expect? BM: No, it hasn't been for us. I think, coming out of the holidays, the key for us is that there have to be great games coming out, and the games are going to help to drive the system. We've really seen that: go back to almost a year ago now with the launch of GTA4, and then we springboarded right from that into Metal Gear Solid [4]. We've seen pretty good movement ever since last April. Now, it turned it down a little bit for us coming into the holidays like it typically does. But that's nothing we weren't anticipating because there was a lot more promotional activity going through November/December, and now coming into the time of year where we are. But some of the bigger titles again I think are really helping to drive that market share back up for us on PlayStation 3. How did the Killzone 2 launch go, speaking of PlayStation 3 and big titles in the early part of the year? BM: It went really well; it was better than what we had anticipated, and again it appears to be a great game. Unfortunately, I'm much more [a fan] of the driving games or the sports games, but again I'm watching it and seeing it demoed and having a hands-on with it at DPS -- it's a good game. It's fun. But in terms of the way it's performed for GameStop or the way you would expect it to perform, has it been good? BM: Yeah, it definitely exceeded our expectations. We increased our order before the title even launched; I think we increased our orders two or three times before it shipped, so we saw the demand coming through our reservations and fortunately were able to react to that. It's a good product. When it comes to ordering and reordering titles, are you guys being more conservative because of the economic climate right now? BM: No, I wouldn't say that we are. Again, I think we're in a little bit of a unique position, obviously, being a specialty retailer. Going into the tough fourth quarter that we did, we had to make a decision: we were either going to back off and believe that there was not going to be as much traffic to drive our holiday business, or we had to order up. Fortunately we made the decision, and we ordered up; and fortunately for us it came through, and the business was there. So we're not seeing a softening as long as we have the good titles. That really seems to be a lot of the thing that's going to continue to drive the momentum: as long as the consumers have a reason to continue to find a way to come out and buy that new title, that's really... I was concerned with April, but now Nintendo has filled an initial big void from a few months ago, where it looked like there wasn't going to be a lot going on in April. Now with the DSi launch and some of the other product that's coming -- Pokemon Platinum coming later this month, and that's just kinda springboarding into the DSi launch -- I think there's some great momentum there. Have you made an effort, in terms of driving more consumer traffic, through initiatives and incentives? BM: Yeah. I think that with our marketing efforts, one of the messages we really promoted at the holidays was 2500 games under $15. We saw the need to make sure the consumer saw that it wasn't just all about higher prices and that there was a lot of breadth of opportunity at fairly reasonable prices as well.