When it comes to product releases, particularly hardware or accessory related, Nintendo's reputation is currently suffering. After the missteps with amiibo in late 2014 and into the Summer of 2015, this year has seen Nintendo make a mess of the NES Mini launch and, in North America, with budget-priced New Nintendo 3DS models over the Black Friday weekend. The respective launches have benefitted eBay scalpers rather nicely as stock has been incredibly hard to find, either as pre-orders or on launch day and beyond.
It's been a mess, and has unsurprisingly angered those that have missed out on buying popular Nintendo products through no real fault of their own. Many want to talk about it, so in this Soapbox we have editorial director Damien McFerran tackling the issue, and editor Tom Whitehead looking into why Nintendo might be continually failing to meet demand. Spoiler: caution and mistakes may be the cause rather than outright cynicism from the big N.
So, let's get to it.
Damien McFerran - Nintendo Has Dropped the Ball
When the NES Classic Mini was revealed earlier in the year, it gave Nintendo Life one of its best days for traffic in 2016 - somewhat ironic when you consider we're talking about a small box that plays a limited collection of old games which (lest we forget) are all available in digital form elsewhere. That's the power of nostalgia, and it was blindingly obvious from that day onward that Nintendo had a hit on its hands.
Obvious to everyone but Nintendo itself, anyway.
As the launch day approached it became clear that demand was going to far outstrip supply, and horror stories of stores only getting two or maybe three units each began to emerge; it was like amiibo all over again. In a year of dismal commercial fortunes Nintendo has a solid-gold success on its hands, yet it appears to have badly undercooked the NES Classic Mini, thereby allowing money to slip through its fingers.
Some have speculated that Nintendo has done this on purpose to create a feeding frenzy that in turn generates media coverage and more demand for the product. After all, it's human nature to want what we can't have, and that is never truer than in the realm of consumerism. While it might be a bit of a stretch to accuse Nintendo of deliberately short-changing its customers to boost the standing of a particular product release, it's a very common practice in other sectors. Buzz Lightyear, Teletubbies, Beyblades and Disney's Frozen - all of these products experienced very careful and cynical stock control at their peak to ensure they remained "the toy to own", and this in turn created publicity which simply cannot be bought.
If Nintendo was able to meet the incredible demand for Pokémon Sun & Moon, then why was that not the case with the NES Classic? Perhaps the company is fearful of being left with unsold stock, but with such a low price point it's unlikely the NES Classic costs a lot to manufacture, and current demand would suggest it could have sold many times more than have been produced. It's the perfect impulse purchase product, and you can imagine people who know nothing about it walking into their local store and buying one on the spot, purely on the name and nostalgia alone. If Nintendo kept production low to avoid risk, then it strikes me as a spectacularly incompetent business decision.
Whatever the reason for the lack of NES Classic systems, the fact of the matter is Nintendo risks damaging its brand (again) by failing to meet the demand for the product this festive season. With the Wii U on its last legs Nintendo is heavily reliant on the 3DS at present, and an additional revenue stream would have been very welcome - as it stands, it's hard to see the NES Classic Mini making a massive dent on the balance sheet for this financial year, unless Nintendo is able to reverse the stock issue pronto. But will the demand still exist next year after Christmas - the biggest opportunity to sell units - has been and gone?
Tom Whitehead - Caution and Financial Prudence Have Been Damaging
I agree with the sentiment of what Damien's saying, and am of the opinion that Nintendo has messed up plenty in 2016. I do think there are business explanations worth considering, though I ask readers to not do the 'internet thing' of equating the analysis below with letting Nintendo off the hook. It's undoubtedly had another bad year of undersupplying potentially popular products (such as New 3DS over Black Friday in the US, NES Mini, even Pokémon GO Plus) and irritated plenty of people in the process. It's continued on from past examples such as limited edition 3DS designs, 'special edition' game versions and, of course, the early months of amiibo. It's a sloppy state of affairs.
Anyway, what are potential reasons for this? Back in early 2015 I actually wrote a bit about this topic in relation to financial results. To avoid boring you too much, the summary of my argument was that Nintendo is overcautious and desperate to squeeze profits from plummeting sales. It was succeeding too, and still is to a degree - sales keep dropping pretty much every quarter, but Nintendo returns modest profits or small (often temporary) losses. Currency factors with the Yen are part of it, but Nintendo has been relentlessly streamlining over the past couple of years to reduce costs, while also buffing the numbers further with some asset sales.
One factor is Inventory - stuff that the company owns, some of which needs to be sold. It's business sense not to make 10 million copies of something that will sell one million units, for example, just ask Atari and those that made the E.T. game. From Nintendo's perspective, it had two launches in relatively close proximity that failed to meet expectations. The 3DS struggled at launch (February / March 2011) and had a hefty price drop after about six months on the market, selling at a loss for around a year until manufacturing got more efficient. The Wii U then bombed after its launch in November / December 2012, and unlike the 3DS never truly improved its situation. The 3DS recovered somewhat with its price drop and then the XL model in 2012, but the Wii U was such a disaster that in one financial report sales were a negative number - the evidence is right here, with PAL territories (marked as 'Other') suffering that indignity in the 2013 financial year. That means that more units were returned to Nintendo by despairing retailers and distributors than were actually bought.
That's grim stuff, and I think it made Nintendo extremely cautious. Like any corporation it worries about keeping shareholders and investors on board, which means running a tight ship and turning around profits. It seems to me that investor confidence, that most erratic and often illogical of beasts, has been maintained by demonstrating efficiency and pointing to potential pots of gold over the rainbow, such as mobile and to an extent Switch. Both could, if they succeed, help bring back 'Nintendo-like' profits, but frankly it's all analysis and a bit of guesswork until the likes of Super Mario Run are released and the Switch arrives.
How much has Nintendo's inventory level dropped, in terms of value? Numbers are below.
- As of March 31st 2012 - 78,446 million yen
- As of March 31st 2013 - 178,722 million yen
- As of March 31st 2014 - 160,801 million yen
- As of 31st March 2015 - 76,897 million yen
- As of 31st March 2016 - 40,433 million yen
- As of 30th September 2016 - 49,056 million yen
No, inventory isn't just unsold consoles and games, I'm not saying that, but the trends are pretty obvious, with painfully high numbers in 2013 and 2014 reflecting a time when Nintendo was struggling with the Wii U in particular.
So I don't fully buy into the argument that Nintendo is manufacturing shortages to create demand, but I think it's making frequent and damaging mistakes in taking a cautious route and avoiding aggressive manufacturing. We saw it with amiibo (and the blame couldn't entirely be pinned on shipping strikes in the US), and with various 'limited edition' 3DS systems or even collector's copies of major games. There's never enough stock, and a factor could be that Nintendo would rather be efficient and sell what it's made, rather than roll the dice and back a product to sell big numbers. It's one thing to produce plenty of basic copies of Pokémon Sun and Moon, but another with less conventional products like amiibo figures or the NES Mini.
Nintendo keeps chickening out, ultimately, preferring to keep excess stock low and take profits where it can get them. It's a strange state of affairs where the company gets surprised by success, and even with Switch it's spoken about ramping up manufacturing further in early 2017 should demand make it necessary. That worries me - why potentially start low and try to react to demand later, with the possible outcome that you fail the keep up? The Wii U and its woes, that's why, but that doesn't make it the right call.
With every understocked product Nintendo gets more negative publicity, particularly on social media, to the point where it's almost a parody of itself. It announces a cool thing, everyone jokes they'll be rarer than unicorn droppings, and so it transpires. That damage to its reputation doesn't, in my opinion, get offset by modest profits and fiscal security. It just makes Nintendo look small-minded and a little frightened of its own shadow.
Maybe, ultimately, it is, though it can try to change that approach if it wants to. Nintendo is a wealthy company, but it's small compared to the size and infrastructure enjoyed by other tech companies like Sony, Microsoft, and of course Apple, Google etc. Those other companies are big-time with varied branches to their business, and Nintendo is still trying to expand into new areas while primarily being an entertainment company. Nintendo doesn't have the economic power of some of its rivals, but it makes this worse by being cautious and wary of its own potential successes.
I'm not convinced Nintendo is employing cynical toy company tactics. I think it's yet to move beyond the stings of its recent failures, and in the process is damaging its potential future successes.