GameStop wants to sell you a used iPhone

Customers queue up for a GameStop Black Friday sale. The company wants to make sure this keeps happening. (GameStop photo)

With sales of more than $9.5 billion and profits of almost $340 million, you wouldn’t exactly think of GameStop as a company on the ropes. But the people who run the leading purveyor of computer and console games in the U.S. have seen the writing on the wall.

GamestopWithTextureAndTagIncreasingly, gamers download programs rather than buy them in retail stores. That means if GameStop is to have a future, it must build a new one.

And that’s exactly what the Grapevine, Texas-based company is doing, according to this story in the San Francisco Chronicle. But CEO J. Paul Raines and his minions are taking GameStop in a very different direction.

Playing off its success in selling refurbished game consoles, GameStop wants to turn itself into a purveyor of used personal electronics. You know GameStop now because it’s where you buy the latest “Call of Duty” title. Soon, you’ll rely on it for used smartphones and tablets:

Standing in the Refurbishment Operations Center, or “the ROC,” a $7 million, 182,000-square-foot facility down the road from Raines’ office in Grapevine, Texas, workers unload truckloads of ammunition for the turnaround battle. GameStop last fall began buying up consumers’ old iPhones, iPads and iPod Touches, shipping them to the ROC for cleanup and repair, then returning them to stores for resale at a nice markup.

With tablets from Google’s Android operating system added to the mix, this year the retailer expects to tally about $200 million in mobile sales, Raines says. “This is a big bet on the future,” he says. “This facility gives GameStop a chance to expand into new businesses.”

GameStop’s console refurbishing business accounts for 46 percent of profit. But there’s bigger potential, according to one analyst in the SFChron story, from sales of used iPhones paired with low-cost, prepaid wireless plans. Its customer base is a natural:

Apple products present the biggest opportunity. If GameStop eventually resells 5 percent of the 230 million Apple devices in U.S. consumer hands, it stands to bring in $1 billion in new revenue in the next few years, says analyst Michael Pachter of Wedbush Securities.

“Where GameStop can absolutely kill is selling prepaid phone plans with the used iPhones, since a lot of their customers are teenagers with money to spend but no credit to get a regular phone plan,” he says.

The Verge has some nice photos shot inside the facility where GameStop refurbishes used devices.

Of course, there are lots of places where you can buy used electronics, including through online powerhouses such as eBay and Amazon.com. But GameStop is counting on the ubiquity of its storefronts – like Radio Shack, it’s everywhere – to extend its reach.

However, GameStop also must compete against those businesses that can provide a subsidy for smartphones. AT&T, Verizon and Sprint all sell smartphones at a deep discount – 16-GB iPhone 4Ses typically go for $199 ($149 at Sprint). But on GameStop’s refurbished iPhone page, that same phone, without the benefit of a carrier subsidy and a wireless contract, sells for $550. In the intensely competitive smartphone market, GameStop’s strategy isn’t one that guaranteed success.