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The CHIPS are down: UK independent games retailer Chipsworld enters liquidation

By on July 29, 2010
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MCV today reports that CHIPS has gone bust, with the loss of 29 jobs at head office and at its wholly owned stores. The company is at pains to point out that its franchise stores are not affected. I

My heart goes out to management and employees. I have seen businesses die and I have been made redundant (although in the end that was one of the best things that ever happened to me), and it is not easy.

I take huge issue with CHIPs stated reason for the liquidation though. In their official statement, they say:

“Since the summer of 2008, Chipsworld Ltd has battled against the credit crunch, mounting unpaid debts and the recession in order to keep afloat. On December 31, 2009, it entered a Company Voluntary Arrangement in an effort to continue trading.

Unfortunately, the recession has lasted far longer and bitten far harder than anticipated and Chipsworld Ltd has been unable to continue trading. Many of its customers, particularly in the North-east of England have been badly affected by the recession and to continue trading would only increase the company’s debts further.”

I just don’t buy it.

The recession has been bad, certainly. And i am sure that if CHIPS is saying that its customers are spending less money in store, that is true. I just don’t believe that the primary cause is the recession.

What caused CHIPs’ problems?

Just to be clear, I have no specific insight into CHIPs. MCV commenters have talked about the difficulties of getting credit insurance, poor merchandising decisions or not having the right stock. That may or may not be true, but it is CHIPS specific. I want talk about the malaise that is affecting retail.

Fewer, bigger products

Publishers are being squeezed and their response is to chase bigger, more impressive titles. Everyone wants to be a Modern Warfare 2, grossing half a billion dollars in retail in the first week. What does that mean for other titles? It means that if you are not a big title, you are not getting the retail sales. In short, we’re seeing fewer titles take a larger share of the revenue. And this will continue.The impact for retail is stark. Publisher strategies focus on people buying fewer titles and playing them for longer. That is not good for footfall or average basket size.

The role of online in boxed products

Increasingly, boxed products are not even that important in themselves. They are becoming the first stage in the publishers’ strategy of feeding the funnel. Boxed games may even become loss leaders for DLC: the publishers get free marketing in the retail store (paid for by the consumer) but aims to make most of its profits from upselling other elements of DLC.

Just to be clear, this is not viable yet – DLC is not yet a big enough segment of the market. But it is a sign of things to come.

The growth of other forms of gaming

For everyone complaining about a recession, there are other games business that are growing like crazy during the worst consumer slump for 20 years. Zynga with $400m+ of revenues. Playfish and Playdom with an estimated revenues of more than $100 million. Companies like GameForge, Jagex and Bigpoint with revenues of around $50 million. Lazard estimates that the global online market was worth $15 billion in 2009, growing to $20 billion in 2010.

That’s a lot of growth. $5 billion of growth in fact. Where is it all coming from? Some of it is coming from new users (see PopCap’s research on gamers on Facebook) but a lot of it is cannibalization of existing sales.

To illustrate the point, here is Nick Parker’s charts for boxed sales versus online games and streaming games. (Nick produces much of the games forecast for Screen Digest, among other things.) We hit the peak of boxed products in 2008 and we ain’t never coming back. It may have been kick-started by the recession, but, in Nick’s estimation, the only way for boxed products from here is down.

Sales forecasts for boxed games versus online games and streaming games

The erosion of the hardcore

This one is more of a belief than empirical evidence. I’m still researching it. But my belief is that the hardcore gamer market is stagnating. I wonder if we may have reached a plateau where the hardcore market has reached its maximum size.

As people get older, with families and other commitments, they are less able to dedicate time to gaming. they are still keen gamers, but will seek alternative, less-intensive ways of getting their gaming fix.

This is precisely what happens in the film / television industries. Single, dating, childless people go to the cinema more often. Older, married couples with kids watch television. They are still consumers of filmed entertainment: just through a different medium.

Of course, cinema went through its rough patch in the 80s and early 90s and has since recovered mainly by improving what it offered its consumers. The same may be possible for physical games retailers. But the easy assumption that people who liked games had to go to shops has long gone. And I’m not sure that retail is yet experimenting with how to replace it.

Conclusion

My point here is not to pick on Chips. It’s to challenge the assumption that games retailing is being hit by the triple whammy of a consumer recession, pressures on credit and competition from grocers. Physical retailing of games is definitely facing these things, but it is facing much more. When the economy recovers and credit comes back, there is nothing but a tough future ahead for physical retailers.

Added to the Job Loss Tracker.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com