May 23, 2022

Why Next Gen Will Be The End for Physical Game Stores.

We all love a good shopping trip but we also love good value. How will the PS5 and Xbox Series S digital models affect physical game retailers? Our prediction? Really badly.

The next gen of consoles are around the corner but how will these affect physical game stores? Life has been tough for typical high street stores that deal in games. If we take the UK as an example, lead retailer GAME has been in the throes of financial trouble for many years. The GAME Group went into administration in 2012 and this led to a restructure and the loss of all Gamestation branded stores. Since then the GAME Group has changed hands a number of times. In 2019 alone they were forced to close 40 stores. Other chains, including regional ones such as Grainger Games have also closed over the last few years.

This is not just a UK phenomenon – the most familiar gaming retailer in the US has also had many woes over the last few years. GameStop has seen shares slump in recent years and closed many stores. It is worth noting that this all came BEFORE Covid-19. This week GameStop announced the closure of 450-500 stores globally – a significant chunk of its current 5122 store portfolio.


Physical game stores are struggling

Why though? Well, there is a downward trend globally in footfall in physical stores. Online retailing has changed the landscape for the whole retail sector. Naturally it is harder for a physical store with overheads to compete with an online store. Online stores can also react quicker to market situations and price promote aggressively. They can also more effectively control stock levels. When you wander into a GAME store and see a bargain bin full of Fallout 76 copies it means units need to be shifted quickly

The rise in digital gaming

However the gaming retail sector faces an additional pressure – namely, digital gaming. In the UK, from 2017 – 2018, it was estimated that the digital market place purchases rose by 12.5% and overall amounted to 80% of the money spent in gaming in the UK. Now PC and Mobile gaming has been predominantly digital for many years now and of course this figure includes online only purchases, such as micro-transactions etc. It notes that AAA titles in this period were still 75% physical.

What was clear though is that there was a year on year decline in physical games. This has only been exacerbated by the current Covid-19 pandemic. Sony, for example, reported that in 2020 74% of software sales were digital in the quarter previous to August 2020. Pricing on digital stores has become far more aggressive and while it is true that AAA releases are typically more expensive digitally at launch, that is only because of aggressive pricing by physical retailers to retain market share – often at their own cost.

Subscription services – the elephant in the room

It is also worth noting that these stats are about game purchases. They exclude the new elephant in the room – paid subscription services. EA, Sony, Microsoft, Apple etc. all have their own paid digital subscription service that gives players access to lots of games. It is these paid subscription services that are really going to provide the death knell for physical stores.

Who doesn’t like this?

The response to the launch of the Xbox One S Digital only console by Microsoft in 2019 was met with muted reactions. Reviews focused on the lack of the disc drive versus price and the limitations for gamers. Now cut to 2020 where the Xbox Series S has been announced. This cheaper next gen model is designed around digital gaming – no disc drive and bundles with the Microsoft Gamepass subscription. The verdict from most gaming media? Great value.

Next Gen Digital only models now good?

For a publisher and platform holder, digital is the dream. Subscriptions represent monthly revenue which is easier to predict. Digital sales all pay a dividend to those who run the stores. Prices can be controlled and importantly, cannot be distributed second-hand. Gone will be the days of your mate passing round GTA in the playground like a covert crack dealer.

Gamers have typically bemoaned the death of physical for these reasons but in a pandemic world where money may be tight, these subscription services, like Netflix and Amazon Prime before them, represent good value to a large portion of the market. That is why both PlayStation and Xbox are releasing digital only versions at lower prices than their disc loaded brethren and why gamers are now looking at a digital future differently.

You got dat new speaker bro?

Death of the second hand market?

Make no mistake, next gen will hit physical game stores hard and very quickly. Once GAME has sold you your Xbox Series S, you will no longer shop at GAME for that console. The rest is on the digital marketplace. It also means no trade-ins. Indeed, where game stores like GAME or Gamestop typically make profit is on second hand gaming. Some stores, such as CEX in the UK only deal in second-hand games. Owners of digital only consoles will never need to frequent those stores again.

This move to digital will only increase as more online services are offered. Google Stadia may not be off to a flying start but Xbox xCloud is round the corner and PS Now offers streaming services. Over the next decade, we may move to a place where being tied to physical device is no longer a necessity.

Next gen a digital dream but physical game store nightmare

I consider myself a collector but I have to be honest and say that I have been a subscriber of Gamepass for over a year now and have played many games via the service. I’m one of those contemplating the Xbox Series S as a cheap upgrade path to next gen. When these next gen consoles roll out over the coming months, many console gamers will unconsciously begin to follow their PC cousins and move to a fully digital world.

Obviously many physical game stores will try to diversify. GAME in the U.K has begun opening stores dedicated to the growing E-Sports market. Many second hand retailers are now focusing on other gaming merchandise, retro gaming and hardware sales to try and compensate.

However, in a digital world, it seems highly likely that this is the last generation where we will be able to browse brick and mortar retailers for our console games. The question for gamers – is this a good or bad thing?

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