Will Amazon’s Kindle Help Revive GameStop?

With many big-box retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) declining to to carry Amazon’s (NASDAQ:AMZN) Kindle devices, industry experts have speculated whether the Internet retailer would open brick-and-mortar stores of its own. However, as CNET reported on Monday, that step will not be necessary; customers will be now able to try out and buy any one of the Kindle Fire tablets in person at GameStop (NYSE:GME).

Why Did Wal-Mart and Target Turn Down Amazon?

When Wal-Mart decided to not to carry Amazon’s Kindle tablets in September, the company told Reuters that the decision was “consistent with its overall merchandising strategy.” However, many analysts believe the decision was made for more tactical reasons. Because Amazon sells its Kindles at very low margins, retailers do not make significant profits from the devices’ sales. But margins were not the only reason for the retailers’ decision. “I think part of it could be margin, though the bigger point is that Wal-Mart and Target view Amazon as a competitor,” Caris & Company analyst Scott Tilghman told the publication.

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In comparison to Target and Wal-Mart, GameStop has no competitive reservations. For the struggling video game retailer, whose business has declined as online shopping has grown in popularity, selling the Kindle in its physical locations could bring much-needed foot traffic to stores. GameStop will also offer a free $25 Amazon gift card with Kindle purchases through January 31, as Amazon has continued to refuse lowering the pricing for its tablets.

CHEAT SHEET Analysis: Is this a Positive Catalyst for GameStop’s Stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’ stock. While GameStop is suffering from the same showrooming fate as many brick-and-mortar retailers, the company’s stock is currently trading above its 10-day, 50-day, and 100-day simple moving averages. The gaming retailer also reported its most profitable quarter in its history in mid-November, in part due to the high-profile releases of Assassin’s Creed, Call of Duty, and Halo. However, as customer traffic decreases, GameStop needs a concrete strategy to remain profitable. The Kindle will provide a way to bring more shoppers into stores and allow GameStop to offer more digital gaming content, therefore supporting the company’s attempt to broaden its focus.

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