From Edge.com
http://www.edge-online.com/features/wii-price-hike-perfectly-justified
Wii Price Hike "Perfectly Justified"
Unprecedented times set the stage for unprecedented measures. The Nintendo Wii could be the first console in history that will not only have held its launch price for over two years, but actually increase it.
On Wednesday news emerged that Nintendo will raise the Wii’s trade price by around £19 per unit. All eyes are now on the retailers, who will either absorb Nintendo's price hike or spread the burden to customers.
Ed Barton, Games Analyst for Screen Digest, believes that regardless of how retailers will react, Nintendo’s reasoning for the price hike is “completely sound”.
“If you look at the Yen exchange rate over the Pound in the previous year,” he says, “it has changed by thirty to forty percent.”
“We looked closely at Nintendo’s figures in the last quarter and this exchange rate has absolutely murdered their operating profit.”
Barton adds that the raised trade price of the Wii is not only “perfectly justified”, but could perhaps be a sign of things to come: “When you look at all the data and financials it wouldn’t surprise me if Nintendo raised the price of Wii Fit. The margin on games hardware and peripherals is a serious problem right now.”
The games industry has lived through decades and eras, but this is the first time it has faced a deep rupture in the global financial market – one which no one completely knows how many industries it has stretched through, nor how long it will last.
The biggest question right now is standing at the shop floors of the retailers. Edge has contacted all the UK’s major specialist and non-specialist outlets affected by the matter, to find out how each will address the Wii’s higher trade price. So far the majority have remained silent, with some – quite understandably – admitting they are “still digesting” the announcement and “need more time” to evaluate how to deal with it.
Barton, however, believes that there’s a chance the specialist and non-specialist retail outlets will approach the issue differently.
“I suspect that non-specialists, in particular the large supermarkets, will just swallow the margin head, simply to get the footfall.”
Yet if the superstores hold the price of the Wii, a big question looms over whether the specialist retail outlets can follow suit. Barton suggests that the UK’s superstores are “financially better positioned” to take a hit, yet the specialist chains may not be able to absorb the price hike.
“I think that one thing we need to keep in mind is the practicalities. I mean, games consoles are relatively large items, these aren’t the cheapest things to be keeping in store rooms and moving around the country. So I think we’re going to see a great deal of pressure on specialists.”
“For all the UK retail industry, an £18-19 climb in trade prices will be enough to wipe out the margins completely,” Barton adds. “System sales are never usually the best thing for specialist retailers anyway, in terms of margins, but at least the retailer has that icing where customers tend to pick up other products with the consoles.”
Yet if the superstores sell the Wii at a markedly lower price than its competition, the specialist retail outlets may be about to lose a key loss-leader.
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