In The Stocks

Nintendo has a big problem. Admittedly, it's the kind of big problem that most of its rivals would sell their own grandparents to have, but it's a big problem nevertheless - far too many people want to buy its products.

To an outside observer, that may sound funny, but anyone who's been involved in the retail business knows what a crucial mismanagement that simple statement represents. To have too few people wanting to buy your products is a major problem, of course - and the ideal situation, much as it may frustrate consumers, is to have slightly too many people wanting to buy, thus creating a small but very media-friendly vacuum between supply and demand.

What Nintendo has done, however, far exceeds that. Its console hardware has just emerged from an incredibly long period of massive supply constraints, with key accessories such as the Wiimote still tough to find on the shelves. Several of its top games have repeatedly and consistently gone out of stock at major retailers for weeks and weeks after launch.

The icing on the cake is Wii Fit, a game and accessory whose demand exceeds supply by such an astonishing level that its resale value on eBay and Amazon's Marketplace is running at almost double its retail value - and key retailers are having trouble keeping stock on their shelves for more than a couple of minutes.

Nobody is denying the media allure of a sell-out first week, of queues outside stores and even of the occasional disappointed consumer to interview. In fact, even price gouging on eBay has its place in the successful marketing of a hit - every headline and column inch you get, after all, can convert into new people interested in the product.

However, when a sell-out first week turns into a situation where the supply channel is so dry that it starts to form sand dunes at the bottom, you have a problem. Consumers hate it, and vent their frustrations on retailers - who hate it even more, because every angry consumer who storms out the door is lost revenue, and may well never come back. Most of all, Nintendo should hate it, because Wii Fit long ago reached the tipping point where shortages stop being good PR, and start seriously hurting your sales.

This happens for a few straightforward reasons. Firstly, retailers start pulling back promotional materials for the product - something that has blatantly, clearly happened to Wii Fit in the past fortnight. There's no margin for a retailer in devoting major promotional space to a product they only sell for a few minutes a week. It simply frustrates their customers, and wastes valuable space - and a printed A4 sheet saying "Wii Fit out of stock - enquire for a reservation" will do the job just as well.

Secondly, consumers are fickle - and the sort of lifestyle consumers into whose den Nintendo has boldly marched are especially fickle. Wii Fit, as a product, has legs - it's not a "fad", as some would like to dismiss it. However, it could also have enjoyed a massive, faddish upswing in early sales, as it became the trendy product of the moment. Its mismanaged supply levels mean that with every passing day, it loses another chunk of that faddish market - and Nintendo loses sales that will never come back to its coffers.

Finally, perhaps most importantly, Wii Fit's long tail will undoubtedly still exist - but it's being trampled on quite badly by these early problems. A product like this depends on word of mouth as its most powerful marketing tool, and if people can't get their hands on it, they can't recommend it to their friends and relatives. That sounds straightforward, but it's absolutely vital. The product buzz you can build by being out of stock regularly is noisy, but delivers a far less long-term valuable return than the low-level buzz generated by simply having a great product in the hands of consumers who go on to become your evangelists.

Of course, you could argue - quite persuasively - that Nintendo doesn't need to care about any of that, as long as it continues to sell every unit it can ship into the market. Indeed, we don't doubt that that very argument is passed around within Nintendo on a regular basis. We can hardly imagine that the firm's European offices outside Frankfurt are labouring under a heavy black cloud of doom and gloom as they survey Wii Fit's sales figures and stock situation.

However, this misses the point by a large margin. Nintendo's continued stock shortages are getting to a stage where they stop being evidence of overwhelming success, and start being evidence of a failure to grow along with the market. While I have every respect for the firm's extremely conservative fiscal management, the fact that it is now severely restricting its own growth and appeal through consistent failure to competently manage its manufacturing capacity is clear evidence that a change of approach is required.

After all, no business on the scale of Nintendo should be satisfied with simply selling out every shipment to the market - a good businessman will lose sleep over all the customers whose money remained firmly in their pockets, rather than having sweet dreams about those he was able to supply to.

What message, after all, does this send to those new customers Nintendo is so proud of attaining? The wives, the grandparents, the girlfriends, the non-gaming masses whom the Kyoto-based firm is so pleased to have brought into the interactive entertainment market for the first time - what has their experience been?

In the UK, here's their experience. First, they were frustrated and annoyed at their inability to get hold of a Wii console, perhaps for months. Even when they did, they may have experienced difficulty in getting a second Wiimote for the device - another retail frustration. Finally, with the launch of Wii Fit, they face the same frustration all over again, retail store after retail store with signs in the window saying "Out of Stock".

For gamers, veterans of sell-out console launches over the years, this is just more of the same. For newcomers to the market, however, it's an absolutely abysmal introduction to the world of interactive gaming - having made the game experience accessible and compelling for these audiences, Nintendo is now, ironically, making the retail experience frustrating, unpleasant and offputting. It doesn't take a genius to see that the company is shooting itself in the foot at this point.

Nintendo is now the leading company in the interactive entertainment industry, by a huge margin - and it needs to start acting like it. Perhaps a testament to its family business roots, the company seems all too prepared to act like an overgrown cottage industry, rather than reacting like the vast, globe-spanning corporation it has grown to become.

When Sony faced a situation where Europe's PS2 supply was going to be incredibly constrained before Christmas a few years ago, it acted like a global corporation and a market leader - flexing its muscles to air-freight in consoles from China aboard gigantic, chartered cargo planes. It's about time that Nintendo recognised that that sort of bold decision is what's required of the market leader.

Taking first place in the race has given it a responsibility to its retailers and distributors, a responsibility to its shareholders, a responsibility to its developers and third party publishers and, more perhaps than anything else, a responsibility to nurture the new audience it has opened up. It's time to stop shirking those responsibilities. After 119 years in business, Nintendo needs to start acting its age.