Nik Taylor
05/02/2012 12:37 | By Nik Taylor, editor, MSN Tech & Gadgets

What's happening with Game?

The story behind the problems at the UK's biggest games retailer.

Image of a Game store (© Game)

What is Game?
Game Group is the UK's biggest specialist video games retailer. On the high street it runs two brands: Game and Gamestation. It has 1,274 stores trading under those two brands, of which 610 are in the UK and Ireland. The group also has three online brands, Game, Gamestation and Gameplay.

Why has it been in the news?
Game found itself making headlines at the end of January, as rumours began to circulate that it was struggling to get new video game releases into its stores. This capped a difficult January for the company. Earlier in the month, it had warned that it will not meet a banking covenant - a promise made to creditors to secure a loan - when it is tested at the end of February.

That warning followed a disappointing Christmas trading period for Game, with like-for-like sales down 12.9% in the eight weeks to 7 January, and 10% down in the 49 weeks to 7 January. Game chief executive Ian Shepherd said at the time: "Our industry had an incredibly tough 2011, and so did we."

Why would Game not be able to sell new games?
Game's business is based on it using credit insurance to buy the games it sells. That means it only has to pay for the games it stocks if it's able to sell them. If that credit insurance facility were to be removed, game publishers might instead ask the company to pay up front for new titles. If Game doesn't have the cash to do this, it could mean it being unable to stock new games.

So, will Game still get its credit?
Game responded to the rumours by confirming in a statement on Thursday 2 February that it was in an "ongoing dialogue with its lending syndicate to reach agreement on revised terms for its facilities".

Later on Thursday 2 February, Game released a follow-up statment, confirming that it had agreed revised credit terms. Although the company has said it expects annual losses up to the end of January 2012 to be around £18 million, this revised credit support means it should now meet its covenant test.

"Under the terms of the revised facilities, the Group has agreed to operate within lower limits of its existing facilities than was previously available. These revised facilities will allow the company to continue to trade," the statement read.

Will all its stores remain open?
As part of its revised credit agreement, Game will be making an "updated strategic plan". "This plan will cover all aspects of the business's activities and strategy, including its overseas operations," said Game in its statement.

While the company could look at all sorts of measure to cut costs, that statement appears to suggest the closure of overseas stores (Game Group has shops in France, Spain, Scandinavia, the Czech Republic and Australia) may be high up the list. The Register has reported that the group is already planning to close 50 of its 600 or so UK and Ireland stores before 2013.

Shepherd said "We're pleased to reach agreement with our lenders, but should be under no illusions about the challenges in our market or the hard work that is required to deliver our strategic plan."

What has been the response to Game's statement?
The company's statement was well received in the business world. After revealing it was able to continue trading, Game's shares jumped by 40%. More importantly for its customers, it was business as usual in the company's shops, with new releases such as Final Fantasy XIII-2 on the shelves last Friday.

So is everything OK for Game now?
Not exactly. Despite game series such as FIFA and Call of Duty selling in their millions, these are tough times for the video games industry. Game's shares might have taken a recent leap, but they are currently trading at 6.64p. Two years ago, in February 2010, they were trading at 107p.

The company is also likely to need its credit levels bumped back up to its old levels in order to trade through the busy Christmas period, according to analysts. "Ability to trade through December 2012 will depend upon revision of facilities back to their full levels," Gillian Hilditch at JP Morgan Cazenove told The Guardian.

However, in the short term at least, gamers won't notice any change at their local Game or Gamestation store, with new games still appearing on the shelves and pre-orders still being taken and fulfilled.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?