During the past two holiday shopping seasons, Nintendo and its wildly popular Wii videogame console have received as much attention for the brilliance of the family-fun gaming system as for the dearth of consoles on retailers' shelves. Out-of-stock notices were as ever-present as tacky seasonal decorations.
MORE ON CIO.com
All the while, Nintendo executives repeatedly offered up the "There's just too much demand" excuse to frustrated shoppers. Nintendo president Reggie Fils-Aime stated that "We are selling hardware at rates that no system has ever experienced," at Nintendo's media event in October. He's right: Since its 2006 debut, Nintendo has sold an estimated 34 million units worldwide, crushing the competition.
Industry watchers and the gaming blogosphere have suggested a range of reasons for the two-year undersupply: A shortage of components in the manufacturing process? An underlying supply chain problem? Was it related to the weak U.S. dollar? Or, the more diabolical speculated, has Nintendo purposefully withheld Wiis from U.S. customers—a shrewd marketing tactic that has artificially created an intense demand? (For an in-depth analysis of the situation, see "Nintendo Wii Shortage: Shrewd Marketing or Flawed Supply Chain?".)
Of course, that was then.
This is now: Worldwide economic indicators have become dire. Banks have been bailed out by the government, and credit markets have seized up. Declines in consumer spending from July through September added up to the worst quarterly performance for personal spending in 28 years. And a recent U.S. consumer survey by Deloitte & Touche found that holiday gift-giving budgets this year will be down 6.5 percent compared to last year.
"Over the last five years, with the easy access to credit consumers had with home equity loans, credit cards and spending their savings, consumers have been spending at pretty high levels across the categories," said Michael Dart, a retail strategist at Kurt Salmon Associates, in a recent Boston Globe article. But this year, Dart added, "with anxiety about their income, no more access to cheap credit, and a low savings rate, there's no way for them to spend historically as much as they've been spending."
So when everyday Joes are deeply worried about paying their food bills and monthly mortgages, the dream of Santa delivering a $250 videogame console (plus the costs for fancy controllers and even more for games) to the kids might be trumped by hard financial reality.
With all that in flux, can high-end electronics manufacturers, like Nintendo and Apple, react to such a swift and deep decline in holiday spending—just a month or so before the season starts? Even if they saw some trouble on the horizon, do they have the IT capabilities—the robust supply-chain optimization and demand-planning applications—to react and adjust to avoid overstocks or understocks?
"It's about how quickly you can get information about changes, and how quick is your manufacturing system or your supply base, when it comes to 'Whoops, we over- or underestimated demand,'" says Kevin O'Marah, chief strategist at AMR Research. "So, your IT systems end up being absolutely essential."
An Oversupply of Wiis for Christmas 2008?
Year-over-year manufacturing data shows that Nintendo has significantly ramped up Wii manufacturing to meet the intense demand. In October 2008, Nintendo announced that its facilities were cranking out 2.4 million Wii units a month, compared with 1.6 million per month in 2007. The 33 percent increase in supply was aimed directly at satiating the upcoming U.S. Christmas season. "We're bringing 50 percent more supply this holiday," Fils-Aime said, "producing an unprecedented level of hardware to try to meet demand."
Michael Pachter, a research analyst at Wedbush Morgan who's an expert on the videogame industry, says that "Nintendo clearly has not made enough Wiis in the past, and it seems that the increase in production at mid-year reflected their best thinking about how to satisfy demand." Pachter points out that in 2007, the U.S. market received roughly 3 million Wiis in the fourth quarter, and this year, the U.S. should expect around 4.5 million. "Whether that satisfies demand is anyone's guess," he adds. (Nintendo media relations did not return repeated calls seeking comment for this article.)