Nintendo Wii Repeats Gaming History Again: Defeats Supply Chain Critics

Take that supply chain critics: Nintendo has busted out its Wii nunchuk controllers this holiday season and is beating down the world’s recessionary evil-doers, proving once again that it is the superhero of Christmas sales.

The Nintendo Wii-nomenon is an Econ 101 study in basic supply and demand dynamics. It also shows that even the best supply chains and demand-planning applications (as well as the rosiest of forecasts) cannot account for product demand that defies all conventional indicators.

In August, 2008, I asked supply chain experts and videogame industry analysts if the fact that the Wii had been in chronic short supply since its 2006 launch was due to a flawed supply chain that couldn’t keep up with demand or a shrewd marketing strategy perpetrated by Nintendo to artificially keep demand high.

Gaming experts and industry watchers offered both logical and conspiracy-type theories: a flawed Wii product price at the outset (at $250, many felt it was underpriced, which led to more demand); global currency rates (as in: it’s less profitable to sell the Wii in the U.S. than it is in Europe and Japan, so keep Wiis away from the U.S.); and manufacturing planning that simply couldn’t meet the known and very intense demand of the previous year.

As the global economy slid into recessionary times this fall, retailers’ outlooks went from bad to worse, and all financial indicators (including consumer spending) pointed toward a shopping season to forget. With that in mind, I posed a follow-up question in October: Two years after the Wii’s debut, could the annual shortage actually turn into a glut of Wii consoles on retailers’ shelves?

After all, Nintendo promised to supply 50 percent more Wiis this season, and there was more consumer-spending unpredictability than good cheer in the air.

Michael Pachter, a research analyst at Wedbush Morgan who’s an expert on the videogame industry, summed it up best: “Whether [Nintendo] satisfies demand is anyone’s guess.”

Publicly, Nintendo executives didn’t appear to be fretting over an oversupply of Wiis. But they were not 100 percent sure of themselves, either. Nintendo America president Reggie Fils-Aime told Fortune in early October that while the videogame industry has historically “weathered recessionary times fairly well, if we get into unchartered territories with stocks coming severely down and unemployment spikes, then all bets are off.”

In early December, Wal-Mart announced that it was unleashing “thousands” of Wii consoles via Walmart.com in an effort to satisfy annually frustrated shoppers. The move was curious: Was there an excess of Wiis on its store shelves already?

Nope.

In fact, Nintendo sold more than 2 million Wii gaming consoles in November, which compared quite favorably to the 981,000 it sold in November 2007. The overall videogame industry recorded growth of 10 percent, according to NPD Group data.

So much for the glut.

When I interviewed Kevin O’Marah, chief strategist at AMR Research, for the October article, I asked him what was worse: to continually overestimate a product’s demand or underestimate its demand, as Nintendo had done. “Overestimating demand is worse, because then you’re stuck with junk you can’t sell,” O’Marah told me. “When you underestimate demand you just kick yourself for not getting all the money you could have gotten.”

If that’s truly the case, then once again it appears Nintendo executives will have to start kicking themselves (with joy, I presume). Or perhaps they can work that into their Wii Fit step-aerobics workouts.

If they can find the necessary gear on store shelves, that is.