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Game Group

Game Group

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Published by Rustam Iliyasov

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Published by: Rustam Iliyasov on Feb 24, 2013
Copyright:Attribution Non-commercial

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02/24/2013

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1
Background
The Game group plc is the largest UK based retailer of entertainment software and hardware,including game consoles and computer games. It has been established in 1999 at the present form aftera round of acquisitions by Electronic Boutique company. Their operations are mainly done via morethan 1300 its outlets, and recently have started to move into worldwide online sales. Its website hasproven to be 2nd most popular game website by UK residents in 2010 (Annual Report 2010). Anotherside of Game's business is the retail of preowned games. They sell software for the majority of gameconsoles, which include Playstation 3, Xbox 360, Nintendo DS, PSP etc. and they accept previouslyowned discs with points based reward system for depositing the used items (Official website).Besides home activities Game also operates in: Portugal Spain Czech Republic Sweden NorwayDenmark Finland France Iceland Republic of IrelandThe main strategy for market penetration in these countries has been through leveraged buyoutof the main players in the industry. (Datamonitor 2009).The latest acquisition of Game station has made Game group the monopolist in the UK market.However the strategy of Game group was not to amalgamate this brand, but to keep and distinguish itfrom Game stores as shop for dedicated gamers and their community (Campaign 2009)The main rival could possibly be HMV, because it also sells game software, and Game Stop
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aUS based entertainment hardware and software retailer. The first one is not exactly in the sameindustry, because it does not sell consoles or preowned goods, and arguably the choice is often limitedsince its specialization is music and movies. The second one does not operate in the UK, although it haspresence in some countries where Game operates. (Game Stop official website). Therefore Game groupplc has a strong presence in the niche.
 
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Current Year analysis
Divisional Analysis
Game group plc. (the company) has 3 general classifications of divisions. These include Newhardware and software, preowned hardware and software and other sources of revenue. The first onesummarizes proceeds from sales of new game consoles, new computer games and other new softwareproducts. It is the greatest contributor to sales, new hardware and software division is almost twice asbig as two other divisions put together. However it is the most costly division according to profit marginindicator
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22%The next segment is preowned hardware and software. In reality it is mainly preowned softwarethat is mentioned, because Game outlets do not generally accept returned game consoles. Although theper cent of profit reaches only 31,7% out of total profits, it is leading in Profit margin indicators
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41.7%(See Table 5). This implies that the cost of selling a preowned product is much less than a brand newone. This is true in spite of the fact that the price of preowned good drops dramatically after it isreturned. Thus profitability of preowned items is greater than of brand new ones.The last is the 'other' division which sells peripheral goods, that may complement gameexperience of the customers. Its sales are extremely low, but the Profit margin ratio is also high,probably this is why the company sells merchandise.Table 1. Divisional analysisDivisions Turnover (£000) Turnover(%)Profit(£000)Profit(%)ProfitMarginHardware 433,748software 730,8New hardware and software 1164,548 65,71% 257,362 52,24% 22,10%Preowned 374,485 21,13% 156,007 31,66% 41,66%Other 233,325 13,16% 79,323 16,10% 34,00%Total 1772,358 492,692 27,80%
 
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Geographic analysis
Table 2. Geographic Analysis(£000) Turnover Turnover(%) ProfitProfit(%)ProfitMarginUK and Ireland 1072,698 60,52% 321,402 65,23% 29,96%International 602,556 34,00% 155,183 31,50% 25,75%Global Online 97,104 5,48% 16,107 3,27% 16,59%Total 1772,358 492,692 27,80%The company operates in three main segments. Firstly, UK and Ireland have traditionally beenthe main priority for Game group. Evidently, this region contributes the most in terms of sales revenue,profit and profit margin.Secondly, international segment, particularly Sweden, Denmark, France, Spain, Portugal andAustralia, This segment is vastly developing (Annual report 2010) According to Cash flow statements forthe past 5 years, the company has spent a considerable amount of cash on acquisitions activities.Company report (ibid) pinpoints that M&A is the main strategy for expansion. Profit margin is relativelylow, probably due to high overheads.Table 3 Exchange differences on translating foreign operations2006 2007 2008 2009 2010Exchangedifferences (£000) -666 -3,571 9,663 17,55 3,92One may argue, that the effect of cheap pound had positive effect on the income figures. ThusPercentage turnover and profit margin do not reflect the exchange rate effect for the past 5 years.Lastly, online shopping is supposed to be impressive in terms of profit margin, due to lowoverheads, however the picture is more bleak.

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