If you’ve bought an Xbox One or PlayStation 4 in the past several months, chances are you’ve got a stack of unused games for an older console sitting somewhere in your house. Now, Wal-Mart Stores (WMT) wants to take them off your hands.
The country’s largest retailer will begin buying used video games next Wednesday, March 26, with hopes of opening used game bazaars in all of its stores at some point later this year. Wal-Mart has become increasingly interested in the used electronics trade. It buys various mobile devices through its website and allows customers to exchange them at stores for credit toward the purchase of new ones.
Used game sales in the U.S. totaled $1.6 billion last year, up 3 percent from the year before, according to industry research group NPD—and they will likely grow even more this year. Sales of the new consoles from Microsoft and Sony have been better than expected, so there are even more outmoded games than usual. What’s more, sales of used gaming products have increased when new consoles come out, GameStop (GME) said in a recent earnings call, because they become a better value.
GameStop is certainly at risk of being undercut. Margins on used video games are much better than they are for new ones. Used game products accounted for 27 percent of GameStop’s revenue last year, for instance, but 44 percent of its gross profit. These margins matter less to Wal-Mart, which could easily afford to pay more when it buys used games or charge less when it sells them. GameStop’s stock has dropped about 1.5 percent since the announcement.
Wal-Mart may undersell its new used-game rival but seems less likely to outbid it, if the used phone trade is any indication. Companies such as Gazelle, whose primary business is the used electronics trade, have generally offered slightly more for phones than Wal-Mart or the Apple Store. Gazelle and company also pay in cash rather than in store credit restricted to the purchase of new mobile devices.
Wal-Mart’s policy on used games is looser than on phone trade-ins. It pays in the form of gift cards with no restriction that the money be spent on other gaming products. So Wal-Mart has a chance to profit twice every time someone walks in with a used game: once when it resells that game and again when that person uses the gift card. If you want cash, you’ll have to go elsewhere.
Of course, to Wal-Mart customers the U.S. dollar holds no particular appeal, says spokeswoman Sarah McKinney. “We think a Wal-Mart gift card pretty much is cash,” she says. “You can buy milk with it—or you can buy a new PS4.”