By glblguy



Photo by Curugon

Have you been searching in vain for a Wii? We have, and every store we visit is out of stock. Finding one is like finding a needle in haystack. We get one of two responses 1) “We receive our shipments on Sunday mornings, so come early” or 2) “They are drop shipped to us and we have no idea when we will get them. Just keep checking with us“.

The following weekend we headed over to Best Buy an hour before they opened to try and get a Nintendo Wii. We spoke with a Best Buy sales person who said they had already given out all of the tickets more than an hour before. I headed next door to Target to see if they had any and was given answer #2. She did tell me that she came to work at 5:00am that morning, and there was already a line of people around the side of the building at Best Buy. I decided at that point a Wii just wasn’t worth it and needless to say, I was frustrated.

The Nintendo Wii was introduced well before Christmas last year. Given the high demand, I expected them to be in short supply last year; however, not a full 1 year later. The unavailability of a product both baffled and frustrated me. I decided that Nintendo must have extremely incompetent management and are complete idiots when it comes to managing their product and inventory. Seems I was wrong, they are in fact quite smart.

I decided to do a little research into why Wii’s are in such short supply 1 1/2 years after they were announced. Turns out the answer is found by looking at the history of Nintendo and the conservative way they manage their cash flow. A s many of you may recall, during the 1980’s, Nintendo was extremely successful and saw it’s fortunes rise as a result. Then, during the 1990’s the exact opposite occurred as it lost significant market share to Sony and Microsoft Corporation.

As a result, Nintendo now maintains an intense focus on cash flow and thus makes every effort to keep inventory of it’s products, including the Wii as low as possible. The result of course is consumers, like us, speculating that Nintendo is deliberately keeping the product in short supply to create more market hype and to keep the product in high-demand. Reggie Fils-Aime, president of Nintendo’s U.S. division says this isn’t the case and that Nintendo simply didn’t anticipate the current level of demand for the Wii. He also says that Nintendo is working hard with retailers and is making best efforts to ramp up manufacturing.

Providing a different perspective, supply chain management experts and consultants say that missed sales opportunities is still better than having excess inventory, which has bitten Nintendo in the past. Excess inventory causes the exact opposite effect of a shortage, as it gives the impression that consumers don’t want the product. As a result, companies automatically tend to err on the side of shortage rather than excess. Additionally, excess supply also angers retailers who have to work harder to sell the product and as a result frequently have to lower prices. Manufacturers also suffer in they often also have to lower prices and even buy back excess inventory.

Unfortunately for us the consumer, it’s far better for the manufacturer and retailers to have a shortage. Having us begging for the product is a far better position for both of them to be in.

Let’s return to the Best Buy on Sunday morning. It turns out that Best Buy gives out tickets based on the number of Wii’s they have. The tickets are handed out well before they open and one ticket is available to each person. After a little digging, I’ve found out that what people are doing is bringing their whole family, friends, etc. and getting multiple tickets and thus multiple Wii’s. They are then listing these on eBay for a significant profit. Retail list price for a Wii is $249. They are selling like hot cakes on eBay for $500.00+ right now. I would suspect as we get closer to Christmas that will only increase.

Did you get a Wii for Christmas? If so, let’s hear your story. Did you pay list price? What are your thoughts on Nintendo’s inventory practice?

Source: Wall Street Journal

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