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Takeaway: The reality is that the used game route is a tough business, and one that takes awhile to get right.

Editor's Note: This is a complimentary research excerpt from Retail Sector Head Brian McGough. For more information on our services, click here.

Newest Player in Used Videogames: Wal-Mart

GameStop, Meet Goliath | $WMT $GME - 1109 Walmart full 600

  • "Wal-Mart Stores Inc. is making a play for the used videogame business, a move that could bring in new customers while rankling GameStop Corp., which has long dominated the market."
  • "Starting next week, the world's largest retailer will allow shoppers to trade in used videogames for anything from groceries to gadgets across 3,100 of its stores. Customers will receive gift cards ranging from a few dollars to more than $35, based on the value of the games they turn in. Those cards can be redeemed in stores and online."
  • "Wal-Mart itself ran a smaller trade-in program in 2009 where it allowed customers to sell used games through kiosks in certain stores, but the retailer failed to make it work. This time, Wal-Mart has teamed up with CExchange Inc., an electronic trade-in and recycling company based in Carrollton, Texas, which also works with RadioShack Corp. and eBay Inc."

Takeaway from Hedgeye’s Brian McGough:

We have to give Wal-Mart credit for going the used game route. Honestly, they could prove disruptive to GameStop…to an extent.

The reality is that it’s a tough business to sell used games. It even took GameStop a very long time to get it right.

It’s just simply harder to manage inventory in this category than almost any other in retail.

Really, there's no way Wal-Mart can do it as well as GameStop.

One of the key reasons is that you need consistent volume of gamers that view your store as a source for the content that they want.  GameStop has that steady flow of traffic -- it is the destination for gamers. And it was only after it established itself as the “Mecca for Video Games” could it build a used game business.

Point blank, this all seems too premature for Wal-Mart.