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Winter 2009 He’s Got Game

Remember the first generation Xbox, a watershed launch back in the fall of 2001? Emre Gol sure does. He remembers customers waiting countless hours in lines snaking down city blocks to get their hands on one. Stores were selling out soon after the doors opened. By the time the holiday selling season got started, the units were scarce and consumers were spending exorbitant amounts for the consoles on eBay. All the while Gol’s entrepreneurial inner voice was telling him to open a video game store.

He also remembers when the Xbox 360 came out in 2005. Same lines. Same sold-out shelves. Same inner voice-only louder this time.

But Gol was already a specialty retailer-one with 10 inline toy stores to run. As he rang up customers, he continued to think about the video game store. His customers kept the thought in the front of his mind. “A lot of people came into our toy stores and offered us a lot of money to find the Xbox 360 through our wholesale connections.” When a customer offered Gol $2,000, it was proof-positive that the video game market had big potential. In quick order he closed his 10 inline toy stores to dive into his new video venture. In May 2006, the first 3D Games store opened in the 1.3 million-square-foot Katy Mills outlet center, in Katy, TX.

A new paradigm

Game tournaments were a hit at the store and brought in a lot of traffic. Buyers were enthusiastic about the store and his repeat-customer base kept expanding. Game makers continued to release new products that excited 3D’s customers even more. Three more Houston-area stores quickly followed.
In 2007, now known as “the year of the Wii,” the US video game industry raked in a record-setting $17.9 billion in sales, according to market-research firm
NPD Group. Total sales were 43 percent higher than in 2006, which itself was a record-breaking year.

imageThe console category (which includes Wii) was up 73 percent over 2006. Game sales climbed 34 percent, with the hottest games-Halo 3 and Guitar Hero II-selling millions of copies in December alone. The Entertainment Software Association estimated that nine games were sold every second of every day of the year.

But Gol didn’t need an association to tell him the industry was growing-he could see it in his own stores. When Madden Football came out last August, he says the stores were “crazy like Christmas.”

Because the stores looked professional and attracted lots of serious gamers, “soon other retailers thought we were a national chain and started approaching us to open franchises.” He saw a way to expand by sharing his success with other entrepreneurs, did his homework, developed his franchise strategy and hired a franchise attorney. The 3D Games franchise became official in January of 2008. By November, he’d signed up 28 franchisees, 26 inlines and two for a new 3D Games kiosk concept.

What attracted so many franchisees in such a short time? For starters, Gol points out that “the video game business is a year-round business,” not subject to the normal seasonal shifts of a category like apparel, for example. Plus, the video game industry has a dynamic, perpetually renewing product line. “Every week there’s a new game that comes out,” he says. Each release generates its own publicity from the game makers, which drives a lot of buyers to 3D Games.

And the customers showing up to buy aren’t just kids-not by a long shot. Although 97 percent of children ages 12 to 17 play video games according to a 2008 survey by the MacArthur Foundation, tweens and teens no longer rule the market as they once did. Sales today are split 50/50 between adults and children, Gol says. Ask anyone in the industry, and Wii gets credit for bringing millions of adults into the video game fold.

“After the Nintendo Wii, video games became a family thing,” he says. These family members had different needs that went beyond mastering Halo 3. From moms doing yoga with Wii Fit to five-year-olds helping Dora save the Snow Princess to grandparents who took to bowling or tennis, the Wii was quickly embraced by consumers across all demographics. In fact, excluding the Wii consoles and games, the top-sellers at 3D games are Wii accessories such as yoga mats, baseball bats and tennis racquets. Sales are now split about 50/50 between male and female buyers, putting to rest the theory that video games are a guy thing.

The Wii system changed everything, Gol says. “A few years ago, no one would have believed doing yoga or snowboarding on a video game system was possible,” but today it’s a given.

Secondhand success

image3D Games stores do more than just sell the newest video games; they also cater to the nostalgic gamer. Buying, selling and trading used games and consoles from as far back as the 1980s now makes up about 60 percent of 3D Games’ business, which is fine with Gol since the markup on used games is better-300 to 1,000 percent compared to a new game markup of about 20 to 100 percent.

“Used games are so important-that’s where you make the money,” Gol says. Some customers come in “at least once a week,” to trade in old games for new, which keeps the used-games stock fresh and interesting. To boost inventory further, Gol started a website, SellGamesOnline.com, to buy used games. “It’s just like a regular website where you shop and add items to your cart and go to the checkout, but instead of customers paying us for our games, we pay them for theirs,” he says.

The site has worked well, attracting “thousands of customers and providing us with the much-needed used games we need.”

The company’s custom-built POS system has pricing information on every game on the market since the 1970s, including new, used and trade-in prices, Gol explains. The system is designed to track market-price fluctuations, “eliminating the retailer’s need to follow thousands of game prices daily.” What’s more, the system has real-time inventory tracking and can be accessed remotely so franchisees can view current sales and inventory from anywhere in the world.

Staying on top of the competition in the used market is just as important as in the new-games market, Gol says, so 3D Games keeps a vigilant eye on competitor prices.

“If they drop a trade-in price, we drop it, as well. Even for a new game, we try to beat their price, even if it’s just two dollars less,” he says. The pricing strategy also applies to trade-ins: “We guarantee we’ll give you more for your trade in.”
Branding and buzz

One reason the 3D Games concept has been such a hit with gamers is that Gol gave a lot of attention to branding, from the store’s layout and retail identity to the logos on the staff T-shirts and customer shopping bags. Franchisees have the right to use the 3D Games brand name and its trademarks, and each receives a customized website for their store within the 3dgamescorp.com domain.

To create buzz for each new store, a customized Hummer with eye-popping 3D Games graphics travels to every grand opening towing an interactive gaming trailer, where “we hold video game tournaments where people can win prizes up to $2,000,” Gol explains. The Hummer, stationed outside the store in the mall parking lot, routinely draws crowds.

Support for franchisees extends well beyond opening day, Gol is quick to point out.

image“Our franchisees receive help every step of the way,” he says. Support includes site-selection assistance, lease negotiations, a 100-page operations manual, store buildout, grand opening marketing programs (including radio ads, raffles, coupons and flyers), promotional displays, and two weeks of training on the video game business, the POS system training and store management (including human resources and public relations guidance). An 800 number is available for franchisees who might need phone support.

“We are not a business opportunity, we are a franchise,” Gol says. “We are going to back up our franchisees on everything,” he says. (All but one of the four corporate stores has been converted to franchises.)

Inline stores carry an average of 3,000 to 4,000 games, while kiosks carry 500 to 600. Both stores and kiosks give customers the chance to play any game prior to purchase and sign up for the company’s customer-loyalty program.

For an annual fee of $14.99, consumers receive a loyalty card that entitles them to an annual subscription to one of five gaming magazines, 15 percent off used games, a 15 percent bonus on trade-ins, and 50 percent off CD repairs. When Gol introduced the loyalty program, “it really gave a boost to our sales. It has brought a lot of repeat business.”

The first 3D Games kiosk (a franchise) opened in 2008 in La Plaza Mall in McAllen, TX, to “very positive feedback.” Sales so far have “passed some of our best inline stores,” Gol says. “Kiosks naturally can’t have thousands of games like an inline store, so the approach on the kiosks is to focus on best-selling titles that are sold-out in big box retailers and other mall retailers who carry games. Also, with our ‘We-beat-anyone’s-trade-in-prices’ motto, we take customers away from other retailers and make them members of our loyalty club. Our kiosks have two registers and three employees, proving how busy they are.”

Gol credits his success in a large part to planning and professionalism. “We approached the retail gaming industry in a different way, by getting trademarks and service marks for every logo or system that we created. We went after brand recognition and brand management like a big corporation. We¬†manufactured custom shopping bags, wall posters and T-shirts with our logo on them, created a loyalty card program to bring back repeat customers, started a yearly discount card that comes with magazine subscriptions, and we send a graphics-wrapped Hummer with an interactive gaming trailer where people can test out the latest games for every store launch. But the most important part is that we managed the company with a solid growth strategy in mind.” The plan is to open 250 locations over the next three years.

The video game business “will keep growing,” he adds. “This past Christmas was the third holiday season of the Wii system and it’s still in short supply. Video games are always the hottest-selling items during Christmas-or any other time of year. That’s why we see video game advertisements on TV and in magazines all the time. That’s why our 3D Games stores are so busy.”

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Emily Lambert

Lambert, a senior writer for SRR, resides in Philadelphia. She can be reached at .

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