Xbox, GameCube a Retailers' Boon as Americans Stay Put

By | November 16, 2001 at 12:00 AM

The back-to-back debut of new video game consoles from Microsoft and Nintendo is expected to fuel strong sales of home entertainment goods as jittery Americans opt to spend more time at home after the Sept. 11 attacks on New York and Washington, analysts said.

They said the launch of Microsoft Corp’s Xbox on Thursday and that of Nintendo Co. Ltd’s GameCube – three days later – could even help lift third and fourth-quarter profits for some of the nation’s top consumer electronics stores.

The big boost, the analysts said, will also come on a jump in customer traffic to stores as shoppers seek to be first to get their hands on the much-hyped video gaming consoles and gaming software.

That could provide some welcome relief to consumer electronics retailers such as Best Buy Co. and Circuit City Stores Inc.. Those companies have seen their profits and sales growth dampened by a stalled economy and waning consumer confidence after the Sept. 11 plane attacks on New York and Washington.

“We expect demand for the two gaming systems, combined with demand for other new product introductions, to collectively help drive traffic and sales at both Best Buy and Circuit City,” said Alan Rifkin, an analyst at Lehman Brothers.

“Xbox has led the way in hype, and we expect sell-through to be very strong,” he added. Best Buy is the nation’s largest consumer electronics retailer, ahead of Circuit City.


Worries about traveling could provide shoppers with even more reason to spend on family-oriented entertainment, such as video games, music, home theater systems and toys.

Last week the American Automobile Association said it sees a 6 percent drop in overall travel during the long-weekend after Thanksgiving, the fourth Thursday in November, highlighting growing fears among many travelers about air safety since Sept. 11.

Monday’s plane crash in the New York borough of Queens may only add to that nervousness, analysts said.

That urge to stay home could mean higher profits for electronics retailers.

Todd Kuhrt, an analyst at Midwest Research said he even expects that “there could even be a surprise on the sales and profit numbers that these (retailers) put up”.

“I think it makes sense that people are going to spend more money on their home entertainment like video games and DVDs as they spend less money on travel and vacations. They’ve got to spend that money somewhere,” Kuhrt said.

The $299 Xbox goes on sale on Nov. 15, and is expected to take on Sony Corp’s popular PlayStation 2 and Nintendo’s $199 GameCube for dominance in the $20 billion global video gaming industry.

Microsoft’s Xbox price tag is the same as that of PlayStation 2, something analysts expect to spark a tug-of-war for the gamers’ allegiance. Xbox also offers the same capability as PlayStation 2 to play digital video discs (DVDs).

Nintendo plans to ship 700,000 units for its Nov. 18 launch, while Microsoft is expected to have about 300,000 units of Xbox at the launch, which will mark the company’s first foray into the video gaming arena.


Microsoft, which on Oct. 25 launched its new Windows XP operating system, had initially planned to ship between 600,000 and 800,000 Xbox units for its launch but said in September it was not sure how many units it would ship for the debut.

Retailers have thus expressed worries that they may be left with hundreds of disappointed shoppers, come Nov. 15.

But analysts said the Xbox shortfall could even be another sales driver as frustrated shoppers pick up other video gaming consoles, including PlayStation 2.

“We are encouraged that the eminent launch of Xbox and GameCube, together with PlayStation 2, and the previously launched Game Boy Advance, should support industry trends,” Rifkin at Lehman Brothers added.

He said while he did not expect Xbox alone to materially impact sales, he believes other new product introductions, like Windows XP and new gaming software titles, could “potentially add” 1.0 percent to same-store sales in the third and fourth-quarters for Best Buy and Circuit City.


Rifkin said in a research note Best Buy could get the largest allocation of at lest 15 percent of all Xbox units shipped, providing it with an edge over rival Circuit City.

He said for Circuit City, the Xbox and GameCube sales bounce, could also be tempered by the retailer’s limited exposure to the entertainment segment. Entertainment is estimated to account for about 19 percent of Best Buy’s total sales against 7 percent for Circuit City.

The Xbox and GameCube sales benefit also is anticipated to help drive traffic at Toys R Us., the nation’s largest toy store and video game retailer. Last month the online arm of Toys R Us – – said it had sold out its first pre-order of the new GameCube console in just four minutes.

“If your definition of a hot toy is one that’s hard to find, then both these consoles will qualify,” Toys R US Chairman and Chief Executive Officer told Reuters in an interview.

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