Video game retailers' expo plays well in Las Vegas

• GameStop%27s annual gathering has special importance in year with two console launches.
• About 5%2C000 employees get briefed on new product features at Expo.
• And about 5%2C000 of retailer%27s top customers came to get sneak peek at new consoles.

LAS VEGAS — In preparation for the most critical season in many years for the video game industry, market-leading retailer GameStop called a massive huddle here with 5,000 of its store managers.

Their three-day takeover of much of the Venetian and the entirety of the Sands Expo and Convention Center was spent getting the lowdown on new video game systems, the Sony PlayStation 4 (due Nov. 15, $399) and Microsoft Xbox One ($499, also due this November) and upcoming releases such as Skylanders SWAP Force (out Oct. 13) and Assassin's Creed IV: Black Flag (Oct. 29).

In addition to test-driving the new game consoles, the employees attended three days of training sessions, where game company representatives broke down the features of their new products. This was the 20th annual GameStop Expo, but only the second at which some of the retailer's most enthusiastic customers were also in attendance to get hands-on with the new systems and games.

"This is a huddle right before the kickoff," says GameStop President Tony Bartel. "We have everybody together, and they are jazzed up."

GameStop and the rest of the video game industry are jazzed to reboot the business. In video game years, the PlayStation 3 and Xbox 360 are ancient — nearly seven and eight years old. The arrival of Nintendo's Wii U last November wasn't enough to end a streak of nine straight quarters of declining store sales for GameStop and the industry as a whole.

The new PS4 and Xbox One, with improved computing power, are expected to kick-start the console gaming category, which has ceded attention to mobile gaming. "As an industry, maybe you could fault us for not moving fast enough," Bartel says, "but now that that innovation is back, I think what you are going to see is people gravitate back into (console) gaming."

The Grapevine, Texas-based retailer is poised to profit on that potential. Total consumer spending on the console video games fell from more than $18 billion in 2010 to about $13.2 billion in 2012, according to The NPD Group. GameStop tightened its belt, closing some stores — it still has about 4,500 in the U.S. — and continues to do so with about 2% contraction this year, says Chief Financial Officer Rob Lloyd.

"A lot of it has already been done," he says. "We have recognized that in a down market, we have to be smarter about how we manage our real estate."

EXPANDING TRADE-INS, EMBRACING DIGITAL

At the same time, the company, which is well-known for letting customers trade in used games and game systems, expanded its trading policies to include smartphones, tablets and other devices such as MP3 music players. Customers traded in more than $1 billion in products in 2012, with 70% of that applied to new in-store purchases.

And it embraced digital game content — much of which can be purchased by players directly from game publishers — as well as sales of mobile and portable devices to help offset declining game sales.

One way GameStop maximized its involvement in digital content was to improve its PowerUp Rewards customer program, which has grown to more than 25 million members in the U.S. A customer who bought a game can be notified via e-mail when new content is available for that game. They have the option of buying it from GameStop.com.

Digital sales grew nearly 18% to $158 million, the company noted in its second-quarter earnings, released last week. Overall, global sales were down 10.7% to $1.38 billion, from $1.55 billion in the second quarter of 2012.

Cumulatively, Rewards customers also provide GameStop with big data about buying trends. The company, which had been gathering customer attitudes about new consoles for more than a year, passes along some research to game makers. "Here's something consumers are thinking, and we want to make sure you are aware of it," says Mike Hogan, executive vice president of strategic business and brand development.

When international divisions of the company began hosting events where consumers could play upcoming games before their release, it made sense to try it in the U.S., he says. For the Vegas event, Rewards customers got first crack at the tickets, which ranged from $20 to $150. About 5,000 customers attended.

"The opportunity to come in and play a new console months before it is going to be released is something you can't do anywhere else," Hogan says. "What we are doing is taking, if you will, an insider experience and making that available to our best customers. … PowerUp (Rewards) has gone from something that began as a (loyalty) program to something that is core to all of our business."

BEST CUSTOMERS GET A HEAD START

Before the doors opened to the public on Wednesday, thousands were in a line that snaked throughout the Sands Expo. A roar went up as attendees were eventually let in.

Inside, more than 60 exhibitors waited with the latest and greatest in gaming, including NVidia's $299 Project Shield handheld game device and playable game consoles from Bethesda Softworks, Disney, Warner Bros. Interactive and others.

Andre Fontaine, 22, of Tucson, came Wednesday to compare the consoles. "I wanted to get a head start on what was coming," he said after playing Batman: Arkham Origins on the PlayStation 4. A current Xbox 360 owner and PC game player, Fontaine said, "The PlayStation 4 is impressing me. And I love this game so far."

Janet Avila, 25, of Hollister, Calif., already has put her money down at GameStop for an Xbox One, but the combination of games and Vegas made the trip worthwhile for her and fiancé David Ureno, also 25.

Games are "a way for us to interact," she says. "I like to play Zumba and racing games."

After a turn on the new Forza MotorSports 5 racing game, she said with the improved vibrations of the Xbox One controller, "it is as if you are really there. You can feel the brakes, and when you hit something, you can actually feel it. And the graphics are really awesome. It seems as if it is real."

Those customers will serve as viral marketers about the games and systems to their friends. It's hard to overstate the weight that GameStop's customers carry.

Rewards members spend, on average more than $300 annually, which accounts for about one-third of all video games sold in the U.S., says Wedbush Securities analyst Michael Pachter. GameStop will likely get half of all new PS4s and Xbox Ones allocated to the U.S., he says.

After the Expo, GameStop's managers are primed to sell customers new games and game systems in the crucial months to come. "It's important for GameStop employees," Pachter says.

Meanwhile, the 80 exhibitors at GameStop's expo leave with store managers educated about their product, as well as some consumer feedback. "The clients I've talked to, like (headset makers) Turtle Beach and Skullcandy, this is a big deal for them because by having this event, there's like 40% less returns," says Pallab Chatterjee, senior editor for online tech site Media & Entertainment Technologies (MandEtech.com).

The Expo's value is something competitors Microsoft and Sony can agree about. At Microsoft, Senior Vice President Yusuf Mehdi says that GameStop's Expo is "not only a great opportunity for us to showcase Xbox One to one of our biggest retailers, but also allows our fans the chance to experience first-hand that the best games are found on Xbox One."

Sony Computer Entertainment America President Jack Tretton agrees that the Expo "enables us to interact with thousands of employees and give them hands-on time with the latest PlayStation products, so they are ahead of the curve when gamers come into their stores with questions."

The huddle now concluded, GameStop is ready to execute its strategy to increase overall profits. Its internal models project that spending on console video games will grow as much as 15% in the last quarter of 2013, and up to 30% in 2014, tapering to 10% to 15% growth in 2015.

"We have one of the strongest software slates ever, and we are sitting right in front of the largest console launches in history with our largest market share in history," Bartel says. "We are really peaking. Now what it is going to take is to take that momentum into the next couple of years."

Follow Mike Snider on Twitter:@MikeSnider