June 15, 2010 / 9:01 PM / in 7 years

GameStop shares drop 5 percent as competition grows

NEW YORK (Reuters) - Shares of video game retailer GameStop Corp (GME.N) fell 5.4 percent on Tuesday after Best Buy Co Inc (BBY.N) said it would introduce a trade-in program for used video games.

GameStop, the video game outlet chain with 6,450 stores in the United States, Canada, Australia and Europe, depends on used video game sales for 24.7 percent of its overall sales. It has faced increasing competition with used game trade-in programs at competitors like Amazon.com (AMZN.O) and Wal-Mart Stores Inc (WMT.N), as well as a growing digital distribution model favored by publishers.

The company, which recorded $570.8 million in used game sales in the first quarter of 2010, had $9.1 billion in sales last year. Its shares fell $1.17 Tuesday to $20.71, and are down 5.6 percent on the year.

Best Buy had previously tried to enter the used game market with limited success, said Arvind Bhatia, director of equity research for Sterne Agee Investments.

“It is not going to be a cakewalk,” Bhatia said. “Historically speaking, we shouldn’t automatically assume that Best Buy will be successful.”

About 16 percent of Best Buy’s yearly revenue -- $37.4 billion in 2009 -- came from entertainment software, which includes video games.

Best Buy’s shares ended down 6 percent at $38.58 after it said quarterly earnings fell short of estimates due to weaker consumer electronics sales.

Best Buy’s slow sales could continue through the second half of 2010, particularly affecting the retail sector, including technology and video games, said Carl Birkelbach, of Birkelbach Management in Chicago.

Despite weak showings from GameStop and Best Buy, U.S. stock indices climbed more than 2 percent on Tuesday.

Reporting by Matthew Lynley; Editing by Dan Grebler

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