The South African currency has continued its slide against major currencies in 2014, weakening as much as R11.38 to the US dollar on Thursday, 30 January 2014 – the worst levels since 2008.
Economist Mike Schussler said we could see the rand hitting R16.40 to the euro, R19 against the pound, and even R12 to the dollar.
This obviously has dire implications for the cost of physical video games in South Africa, as prices are typically set by the international publisher in US dollars, UK pounds, and euros.
Our locals distributors (such as Microsoft, Ster Kinekor, Megarom, and Apex Interactive) are at the mercy of the weak rand when importing games and hardware, and coupled with inflation, have little choice but to raise prices to protect their business.
MyGaming asked a number of local retailers and game distributors to weigh in on the effects the weak rand value will have on pricing in future.
Megarom spokesman Jason Borea said “The current depreciation of the rand against all major currencies will affect all import based companies negatively, especially when they are at these kind of levels and fluctuations.”
“The current slide of the rand (worst levels in 5 years) will certainly affect game pricing negatively by pushing pricing up. Over the last year the rand had depreciated over 28% to the dollar, 33% to the Euro and 40% to the pound. This in turn has also effected shipping costs which have seen an overall increase of 30%.”
“Unfortunately, depreciation of the currency at these levels leaves industry players with very little choice but to increase pricing. However, as seen in the past, if the exchange rate were to improve dramatically we would again see an improvement in local gaming prices.,” said Borea.
Ramone Pickover, category manager for games at Kalahari, said that prices will likely be going up in future. “Unfortunately, since all games are imported, the exchange rate plays an important role in the final price of a product. We will however always strive to ensure that our customers get the best price on pre-orders and new releases.”
Discussing the knock-on effect of the weak rand, Pickover said “Suppliers are being hit the hardest, as they are unable to be as agile as they were in the past. This has a negative effect on retail, and finally the consumer. Pricing on games will unfortunately see a steady increase, but consoles are going to have the highest price hikes, which isn’t great news for anyone looking for a new console. As a retailer, we will always ensure that we offer our customers the best price possible.”
Nerisha Lakha from CNA Online said that “Based on the current performance and as per trend last year, the continuing devaluation of the rand will lead to a price increase in software and hardware.”
“As seen last year, FIFA, Assassin’s Creed, and Battlefield titles all went up from R599 to R699. This was due to the value of the rand – this will affect pricing on all aspects of gaming including hardware, accessories, and Software (new release titles as well as budget titles).”
“The effects of rising petrol prices, e-tolls, combined with rand devaluations has led to price increases from all our suppliers. These also impact on our (online) costs for delivery to customers,” said Lakha.
Tex Hartog from AWX explained the effects of exchange rate fluctuations from their company’s perspective as a retailer.
“If anything, it’s publishers that need to play ball and facilitate a price break on games for territories like ours that are so badly affected by exchange rate fluctuation. You guys would be shocked at how little retailers like us (and the SA distributors) make off a gaming product, specifically hardware and software,” said Hartog.
“It ranges from 3-17% at most! To give you an idea, an average working business model for retail needs to run on a minimum 30-40% gross profit margin to pay bills, so ours (gaming retail) is way below a normal retail margins. Survival in this industry is really about selling software in volume but that’s becoming increasingly difficult, as the higher the price the less you sell – especially as games start to list past the R699 mark,” said Hartog.
Hartog further explained that although digital games are often cheaper, physical console games carry a resale value, justifying their slightly higher purchase price. “AWX, and I’m sure other independent game retailers, are dependent on the value of physical copies of games over digital product for the pure reason that it has resale value as a physical copy. Trading in to purchase the now ludicrously expensive games is really how guys are able to make new release purchases most of the time. If that system does indeed fall away, then yes, gaming retail will most certainly die.”
Hartog said that AWX always tries to support local distribution channels and get them to bring in products such a JRPGs and collector’s editions. “You guys would be surprised at how many collector’s or special editions would not have seen the light of day in South Africa without you guys committing to your orders like you have been and AWX validating the minimum order quantities needed by the local distributors to supply those products in our country,” said Hartog.
“All I can say from AWX’s point of view, is that a general price increase that is in line with the exchange rate fluctuation in no way indicates that we are making more money out of [customers] as margins are standardised in this industry. When you see pricing that’s way cheaper than us, it’s really because that retailer is taking a knock and selling below cost, to grab sales, as they have many other product lines to compensate or the budget to do so. We always try to get [customers] great membership pricing on product, add a more personal service, try to make sure [customers] have the products on time and understand the value in having [the] client supporting our specialized products,” said Hartog.
Distributors Ster Kinekor, Apex Interactive (EA), and Microsoft, and retailers Makro and BT Games did not respond to requests for comment by the time of publication.