The competition for used video games is heating up as the world's largest retailer enters the arena starting next week.
Wal-Mart said Tuesday it would allow consumers to come into its stores, at 3,100 locations, and trade-in used video games for an eGift card for use on any item sold in Wal-Mart and Sam's Club stores and online.
Later this year, Wal-Mart will resell the pre-owned games in-store and online, after the games have been refurbished by CE Exchange. Wal-Mart currently works with CE Exchange on its smartphone and tablet trade-in programs.
Word of the new program sparked a selloff of GameStop shares, which tumbled 4 percent, as investors worried about the impact on the video game retailer.
GameStop is largest retailer of new and used video games, with two-thirds of its product offering used games. Pre-owned games are significant margin boosters for the gaming retailer, accounting for about half of its gross profit.
Wal-Mart's success in the used video-game market remains to be seen, but its entry is significant.
"For all the concern there's been about the used video-game model as digital and online video games take share, Wal-Mart getting in validates the business model," said Oppenheimer retail analyst Brian Nagel.
"We aren't participating in the $2 billion used gaming opportunity at all right now," said Duncan Mac Naughton, chief merchandising and marketing officer for Walmart U.S., during a conference call with reporters that announced the news.
According to NPD, video-game sales fell 17 percent during the most recent holiday season.
However, despite the decline, Wal-Mart said it still expects there was an inflection point in gaming with the new hardware that came out last fall, Mac Naughton said.
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No doubt, Wal-Mart likely hopes the program will generate foot traffic, or help it capture a larger share of new-release game sales as those trade-in dollars are turned into sales.
That's because the business can be lucrative. While the industry saw video-game sales fall over the holiday season, GameStop reported a 7 percent increase in used game sales for the period.
If the new video game trade-in program follows the example of Wal-Mart's current electronic trade-in programs, the value of the video game will be as competitive as the market allows.
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In a note to investors, BB&T Capital Markets analyst Anthony Chukumba said, "We do not believe Wal-Mart will have a material impact on GameStop's dominant used video-game market share and would use any weakness in the stock today as a buying opportunity."
Wal-Mart isn't shy about its entry into new markets and the potential fallout that may cause for rivals. In a press release announcing the new program, Mac Naughton refers to the retailer as a disruptor saying, "When we disrupt markets and compete, our customer wins. They'll save money on video games and have the flexibility to spend it however they want."
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Nagel isn't so sure Wal-Mart can completely disrupt the market for used games. "Wal-Mart is incredibly good at what it does. But, to execute a buy, sell trade video-game program for a big retailer, like Wal-Mart, is notoriously difficult," he said.
Chukumba agrees, noting "many retailers have been unsuccessful in their past attempts to enter the used video-game market" including an earlier Wal-Mart test, Best Buy, Toys R Us and Blockbuster.
When asked if Wal-Mart had ever considered a trade-in program that gives consumers cash-back, Mac Naughton said he thinks a Wal-Mart gift card is pretty close to cash because shoppers could trade-in a used video game for a new game, or for anything from socks to a bike.
GameStop, Best Buy and Amazon all offer gift cards for video game trade-ins, and while eBay does offer cash, it charges various fees for the exchange.
—By CNBC's Courtney Reagan. Follow her on Twitter @CourtReagan.
(UPDATE: This story was updated to add GameStop market reaction as well as additional comments from analysts.)