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Console Revolution

Luke Ume | 15 Dec 2011 14:00
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Long Xiang is a tiny store, not much larger than your average bedroom. Lining both walls are large glass cabinets, stuffed to the bursting point with all manner of games and peripherals. The store is piled high with boxes, and the remaining floor space is constantly crowded with customers, as money and games change hands in a complex series of transactions. Owner Zhao Chun Gu, an energetic man who runs the store with his wife, is eager to speak with me. He seems surprised that a foreigner would take an interest in his humble shop, but speaks freely, unconcerned with discussing the intricacies of a business that for all intents and purposes is completely illegal. Gu has been running the store for about 7 years, after his family brought him into the gaming business. In the beginning, the store was extremely profitable, but now with ever-increasing rent and competition, things are starting to get a bit tighter. While Gu enjoys playing games himself, managing his burgeoning business occupies most of his waking hours. The store is open from 10 to 10 nearly every day of the year, and he operates with limited staff and resources. Along with the retail outfit, he also runs an online store via Taobao, China's wildly popular online marketplace, which has become his main source of revenue. "Even after we close, I'm still in here for 2 or 3 hours every night; packing deliveries, talking to customers, unpacking orders and updating our website ..." says Gu, counting the tasks off on his fingers.

In a market rife with inexpensive fakes, selling legitimate games seems like an extremely risky proposition.

I cast my eyes over the games inside the cabinets of his store. The selection is impressive; for example, not only does he stock The Ico and Shadow of the Colossus Collection as a dual disc release, but also the individually packaged Asian-region releases and a boxed, Japanese special edition. There are also many titles that have only just been released in the Western markets displayed prominently. I inquire as to how sellers are able to import so much so quickly, especially considering that there is no legitimate distribution available to them. Gu informs me that few of the storeowners import games themselves, instead relying upon a network of dealers to provide them with merchandise.

Most of the games and consoles for sale in China originate in Hong Kong, where they are purchased in bulk by the dealers and smuggled across the border into Shenzhen. There are no taxes to pay with illegal importation, which keeps the eventual retail price down, but the dealers face considerable risk of running afoul of customs officials. If caught, they face potentially severe penalties, but the staggering amount of product entering the country suggests that for many of the dealers, the risk is worth the reward.

Once the games arrive safely in Shenzhen, the dealers mark the prices up and distribute to sellers all over the country. To stay competitive in a market that is fast becoming crowded, the sellers must keep their prices low. After paying the dealer, the seller's retail markup is low, with an average profit being between 50 cents to a few dollars per game. Because a single sale represents such a low profit, the storeowners must rely on volume of sales to make ends meet. In a market rife with inexpensive fakes, selling legitimate games seems like an extremely risky proposition. Paying dealers for a big order constitutes a huge overhead for the storeowner and if he can't move stock he may find himself unable to afford future orders. Many stores have gone out of business this way, Gu informs me, although he consistently makes large orders, sometimes 200 copies of a single game as he nurtures a dedicated client base of regulars who support his store. "Customer service and honesty is everything if you want to be successful in this business," he tells me. As if to illustrate this point, during our conversation a customer walks out of the store with a game on IOU, promising to forward Gu the money online.

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