GameTraders game plan

Mark Langford, the 51-year-old founder of video game chain GameTraders, has little time for the products he sells. The challenge of running a franchise business is more than enough for him.

“I like the challenge – and I’m more of an entrepreneur than a fanatical gamer,” he says.

Langford has plenty on his plate right now. While the downturn is hitting the retail sector hard, he says the gaming industry is one of the few niches doing well as families move towards what he calls “co-operative gaming”. Industry revenue increased 47% during the 2008 calendar year, reaching $1.96 billion.

“We’re in a business that’s experiencing growth. We grew at 46% this past year because people are not buying as much with cars and overseas holidays, they’re going to buy DVDs and computer games.”

Langford also says that the industry’s move towards family-oriented games has helped expand GameTraders’ customer base, “so the company is well suited for families in a cost-saving environment”.

“We have noticed that there’s more trading and people buying second hand. As things get harder we will see more of that happening.”

But Langford says the company is introducing initiatives to help it survive the next 12 months and is not relying on the industry’s boom for success.

“We’re going to be putting more emphasis on being an Australian-owned franchise, and our two competitors are overseas corporations, so that helps,” he says.

“We’re also going to be putting more emphasis on the benefits of trading in and buying second hand. If someone wants a new game and they have $100 and a stack of old games, they can trade their old games in and can even get a new one for free.”

GameTraders recorded revenue of $42.6 million in 2007-08, and is expecting to break $50 million during 2008-09.

But Langford counts himself as lucky.

“I feel fortunate that we’re in a business that is exponentially expanding, but if you have an ordinary retail shop that has no major growth and no real difference, then there’s not a lot you can do.”

Credit crunched

Despite his company’s strong growth, Langford says his franchise chain has been held back by the credit crunch.

“We’re getting a lot more inquiries than ever before, because people have said they’re getting retrenched. We could have over 20 franchisees, but obtaining finance is a big challenge.”

In recent months, sales have also been under pressure. “Christmas sales were reasonable, but certainly nowhere near as good as last year,” Langford says.

“We are starting to see a slowing in our like-for-like sales running back to September when things became concerning…we noticed straight away in retail.”

But despite the difficulties, Langford says discounts are the last thing on his mind.

“We are not going to discount much. The margins are low in new games, so our focus is that you can save if you trade. If people are worrying, they shouldn’t be driving around for hours trying to save $10, they should be using us.”

A different business model

While Langford built the franchise around trading second-hand games, the business model has shifted to a point where the majority of sales come from latest releases.

“We had to start evolving. Since the first expansion our model is now predominantly new games, but we’ve still stuck to our roots and take anything as a trade, including 1970s gaming systems.”

Langford says the move to selling new releases has been challenging, as several franchisees didn’t want to go along with the plan.

“We had resistance from the franchisees at that time. Having to put in new capital was a main problem as games are expensive and to have a good range is hard.

“Secondly, we’re competing against our own original business model. Selling old games is easy, but new games have low margins and it’s more complex because you need to make sure you’re up-to-date with new releases.”

Langford also says that store locations have demanded a change, as stores in unpopular strip malls aren’t the best space to sell new releases.

“We learnt fairly early that being in strip shops will only give you a reasonable living. We’ve since rebranded as we’ve got to have a modern look if you’re in major shopping centres. But that costs capital, and a number of franchisees weren’t happy.”

Future

Langford says that he is confident the business will survive the downturn thanks to the fact he has developed “strict expectations” of his franchisees.

“I think in the early stages you’re not quite as strict with your expectations, but now they’re higher and we should have done that from day one. The good operators want that standard, and in the last year in particular we’re introducing higher expectations.”

But Langford says he isn’t too worried about the state of the retail sector. He says as the demand for personal entertainment continues to grow, GameTraders will always be able to cash in.

“Customers like our stores because we’re interesting, and it makes an exciting store experience. It’s a gaming destination; people love to hang around, so the demand is definitely there and there are people wanting our products.”