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Gamestop algebra

November 16, 2006

[UPDATE: Ouch! Gamestop now is threatening its employees with termination if they buy their own reserved PS3 out of the first batch of systems, according to PeteandMegan.com.  And a group of people already waiting in the PS3 line outside a Lexington, KY store were injured by a drive-by BB gun shooter. A KYTV TV reporter was also injured in the process.  What is this? Iraq?]

OK folks, we’ve all heard the stories about Gamestop messing up this launch of the Playstation 3 by taking too many pre-orders for the $500-$600 systems. Japan gets PS3 early

I used to work for what is now Gamestop long ago, when Greek life and the Thursday night mixer with Rho Kappa Chi was my biggest priority. Ahhh…memories.

And I was there as the Sega Dreamcast was launched on the public (on 9/9/99, remember?), with similar results.

Too many promises, not enough product.

But while disappointed gamers sit and wait for Gamestop/EB Games to call them about their system’s arrival, the company is making out financially on Sony’s lack of production through the taking of pre-sale deposits. So it’s no surprise that the company is not trying to fix these problems.

Let me dust off my college math textbook (*cough cough*), and let’s crunch some numbers:

  • Number of Gamestop/EB Games stories in the USA: approximately 3,600.
  • Let’s estimate that each store oversold their PS3 reservations by 5 systems per store, that’s 18,000 systems total that they overpromised. Again, only an estimate. I’m sure some stores took more pre-sales than others.
  • Each of those customers that reserved a PS3 paid a $100 pre-sale deposit in advance. That’s $1.8 million in pre-sale deposits for those 18,000 customers. So that’s $1.8 million in advance sales Gamestop gets to claim, without even selling a product, and there’s no guarentee when that product will arrive, according to the reservation’s terms.
  • Hypothetically, let’s say Gamestop’s financial VP invests that $1.8 million of pre-sale capital in various stocks and funds, and let’s say they make 5 percent on their investment over a 3-month span. That’s $90,000 they’ve made off of fan-boys’ despair, before they have to re-spend the original $1.8 million on fulfilling late-arriving PS3 reservations.

Again, this is all speculative, I have no inside info on the number of Gamestop reservation shortages. And yeah, $90,000 is a very small drop in the bucket compared to the chain’s millions billions in annual sales ($3.09 billion last fiscal year). But split that over 3,600 stores, and it would pay the store managers a nice $250 or so as a holiday bonus … even more reason to overpromise the PS3.

But this practice really should be investigated by the states’ attorneys general as a form of retail or advertising fraud. Until some sort of control is put in place, this will continue with the Playstation 4, 5, 6, and so on.

Hopefully, I will have outgrown video games by then.

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