Amazon Takes Aim At GameStop With Trade-In Program

SAN FRANCISCO (Dow Jones)- Internet retailer Amazon.com Inc. (AMZN) has taken aim at GameStop Corp. (GME) by introducing a used game trade-in program that allows shoppers to swap their old video games for an Amazon gift card.

GameStop is the world's largest video game retailer and has a trade-in business that has thrived in the economic downturn, with consumers exchanging used games to save money when they buy new titles.

Analysts were skeptical of Amazon's trial initiative, but GameStop investors, already concerned by reports earlier in the week that retailer Toys "R" Us Inc. had begun testing a videogame trade-in program, reacted sharply. GameStop shares, which have fluctuated between $16.91 and $59.13 over the past year, were down 15.43% at $23.09. Shares in Amazon fell 0.7% fraction to $64.39.

The move is part of Amazon's effort to expand the number of categories - and products within those categories - it offers to consumers. That effort, as well as aggressive discounting and free shipping, has enabled Amazon to weather a worsening consumer spending slump.

Analysts doubted whether Amazon's program would gain much traction.

"Our sense is that the online/mail-in used business has significant disadvantages relative to the retail model, both with regard to the economics and timeliness of this transaction," said SunTrust Robinson Humphrey analyst David Magee.

One game player posted a comment on Amazon's site complaining that the Internet retailer doesn't provide sufficient incentive to lure him away from GameStop. He said Amazon's trade-in values are on par with GameStop, but that he can get immediate gratification at GameStop stores rather than have to wait for a new game to arrive by mail.

Magee noted that GameStop tried the same online trade-in model several years ago but discontinued the effort.

"Amazon is a formidable operator, but given GameStop's deep specialization in the used business, if GameStop didn't see a line of business here worth continuing we are hard pressed to imagine others gaining sufficient traction with it to pose a real threat," he wrote.

-By Scott Morrison; Dow Jones Newswires; 415-765-6118; [e-mail]