Walmart Tries to Prove It's Got Game

NEW YORK (TheStreet) -- Shares of Wal-Mart Stores (WMT) have taken a beating since the start of the year.

The stock is down 4% for three months, nearly 5% for the year to date and 7% since the beginning of December. Shares are currently at $74.75.

Even less attractive have been the images presented to TheStreet's readers by Rocco Pendola.

Walmart may not be able to exchange its image at the moment, but on Tuesday it announced you can now come in and exchange your used video games. This is a $2 billion industry that is currently dominated by, among others, GameStop (GME).


WATCH: Jim Cramer Prefers Take-Two, EA to Walmart and GameStop

Beginning March 26, Walmart customers may bring in used video games from popular consoles like Microsoft's (MSFT) Xbox 360 and Sony's (SNE) PlayStation3. Customers will receive a store credit, which can be used at Walmart and Sam's Club stores.

Unlike similar trade-in programs, Walmart won't offer cash for the exchange at more than 3,100 stores, but customers can use the credit towards online Walmart purchases such as mobile devices. Walmart also plans to send those games traded in off for refurbishing and sold "like new."

If this sounds like a pawn shop, it's because pawn shops operate under a similar models. Blockbuster also tried this trade-in tactic and it failed. Both Amazon (AMZN) and Target (TGT) have begun playing this game.

But given Walmart's dominance across the U.S., there is a strong market for what the company might be able to produce, which will help revenue.

There may be an element of "so what" here. But before you knock this idea, consider that Wal-Mart posted $11.9 billion in revenue for all of 2013. The pre-owned gaming market is said to be a $2 billion industry, which represents 16% of Wal-Mart's annual revenue.

Given GameStop's advantage as a market leader, no one's going to expect Walmart to seize the market. But even if the retail giant was successful at securing 15% share of the pre-owned market, which is a very conservative number, this still represents $300 million in sales.

That's not what Walmart is after.

The company has made it known that new game releases will remain its focus. But management also understands that it is a low-margin business. By issuing an in-store credit for the trade-in, Walmart will be able to entice customers to purchase other items while they are in the store, higher-margin products.

What's more, it doesn't cost Walmart anything to be in this business. The company already has an electronics department that promotes new game releases. It's a perfect parallel.

But is the company now cool?

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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