Wal-Mart Stores Inc. (WMT) recently announced that it is lowering the prices of 25 of the most popular video games. The company intends to lower prices by about 15% to 20% by Christmas Eve. This announcement has been a major worry for the world’s largest video game and entertainment software retailer GameStop Corp. (GME)

In response, GameStop Corp., which generates the bulk of its sales during the holiday season, will be forced to reduce prices of its games to stay competitive. Moreover, according to market sources, most of GameStop’s stores are near Wal-Mart outlets, thereby posing a much tougher competition for GameStop in terms of attracting customers.

Wal-Mart’s decision to cut video game prices this holiday season is a strategy to take advantage of the sector’s popularity as gifts. According to NPD Group, games are not expected to do as well this year as the year before, when Americans spent more than $21 billion on game software, hardware and accessories. Moreover, this year there have been fewer hit games and the recession has led customers to be more selective about the games they buy.

Wal-Mart lowered prices on video games such as Halo 3:ODST and Left 4 Dead 2. In addition, the company is also running a promotion from Dec 5 through Dec 12, offering a gift card worth $50 to customers who buy the $199 Wii game console.

However, GameStop’s website yesterday declared that Left 4 Dead 2 will now be sold for $39.99, down from $59.99 earlier. Halo 3: ODST is also being offered at $39.99, down from $49.99 quoted earlier.

These GameStop prices are lower than the $50 that Wal-Mart is charging for the games. But other games, such as Mario & Sonic at the Olympic Winter Games, are cheaper at Wal-Mart, neither is GameStop offering a gift card for a Wii purchase.

Games are not the only category that Wal-Mart is offering discounts on; even online, the company has been offering discounts on books and DVDs to compete with companies such as Amazon.com Inc. (AMZN) and Target Corp (TGT).

Zacks Investment Research

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