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Nintendo Exec: Sales Drop Is Due to ‘Software Shortages’

While Nintendo is undergoing another fairly well documented hardware shortage after an unexpectedly strong December, the company’s executive vice president of sales & marketing is blaming software shortages on its disappointing February sales numbers.

Wii
AP
Wii

“Titles like ‘Wii Fit Plus,’ ‘Mario Kart,’ and ‘New Super Mario Bros.’ were in low supply in January and February,” says Nintendo’s Cammie Dunaway. “We were out of stock on our top items.”

Nintendo sold 3.8 million Wiis in December, according to Dunaway. Analysts and other industry observers expected the surge in hardware sales to lead to at least a soft bump in software sales early this year, as new owners explore the console’s offerings. It didn’t happen.

Nintendo’s February software sales were down 34 percent year-over-year and 29 percent month-over-month – significantly below analysts expectations. Sales of “Wii Play,” for example, a popular purchase among Wii owners because the game is bundled with a second Wii controller, were off sharply, selling roughly 50,000 copies.

The sharp decline is raising questions about why new Wii owners aren’t buying additional titles. Some fear it could be indicative of a change in buying habits.

“Over the last several years, the Wii benefited from being the cheapest console, but it seems that many of its new purchasers are more discriminating about software purchases than in the past, with a consistently declining tie ratio,” said Wedbush Securities analyst Michael Pachter. “This is exemplified by Wii Play.”

Gaming industry insiders scoffed when informed of Dunaway’s explanation of the low Feb. sales. Replenishing low software supplies, they say, typically takes no more than a month, so any shortage that hit in December should have been long rectified (with the possible exception of ‘Wii Fit Plus’ which comes with a controller that may take longer to manufacture).

Regardless of reason, the large mass of consumers who bought the Wii during the holiday season, spun on perhaps by the system’s price cut, aren’t following up with software purchases. And even though Nintendo makes a notable profit on its hardware, it depends on strong software sales to maintain revenues.

If the company is not able to entice customers into stores, it could face a significant earnings shortfall this year. At the same time, some third-party partners, such as Electronic Arts, are redirecting development dollars away from the Wii

Nintendo does have some major releases waiting in the wings over the next few months which could spur buyers, including “Super Mario Galaxy 2,” the sequel to one of the Wii’s top selling games, and “Metroid: Other M,” a new take on the classic series.

Nintendo EVP Cammie Dunaway
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Nintendo EVP Cammie Dunaway

The company’s hardware shortage was very much in evidence in February sales. Microsoft’s Xbox 360 outsold the Wii for the first time ever, as Wii sales were off 47 percent year-over-year and down 15 percent month-over-month. Nintendo’s handheld system, the Nintendo DS, continues to be a strong seller, however. Sales were up 3 percent year-over-year and up 45 percent month-over-month.

Dunaway says the company was caught off-guard for the holiday demand and is working to replenish units to retail, but that “it’s hard to say” when normal levels will be restored. Currently, she says, “you’ll find a Wii in one out of every four stores you go to.”

In the meantime, the company is gearing up for a fight with Microsoft and Sony this holiday, as both systems unveil motion controllers. Sony’s PlayStation Move will go on sale this fall, with Microsoft’s “Project Natal” following a couple months later.

Dunaway says Nintendo, for its part, isn’t threatened by the new peripherals.

“One of the things is that motion is in our DNA,” she says. “It’s the very essence of the Wii. It’s not just an add-on peripheral. We’ll continue to bring out the greatest software experiences for consumers. … It’s not about technology.”