Very interesting information. Note to the markup on hardware vs software. Like I've said all along, without software sales, consoles make very little profit.
Forced Wii bundles: An independent game store's perspective
By Ben Kuchera | Published: December 19, 2007 - 02:12PM CT
Yesterday, we talked about Nintendo's stance against forced bundles, and we gave some instructions about how to fight back against scuzzy retailers. I've already received some great leads, and I'm following up on them. Before we start reporting on that, though, I thought I'd share another e-mail I received from an independent retailer who has a very different perspective on bundling.
"I am a single independent video game store with annual sales of above $700,000. The markup on consoles is less than 1 percent and games are around 14 percent," he writes. Running any game store is a hard business, and these margins don't help. What's worse is dealing with the distributors. "My distributors tell us that Nintendo has an 'attach rate' and we are often forced to purchase four games with each console. We pay $246 per console. If we sell the console for $249.99 retail, it's a $3.99 markup. If a person pays by credit card we lose money."
So how do you deal with distributors while trying to turn a profit? "We sell the units with a 3 game attach rate. We call it a choice bundle. A customer buys a Wii and three games of their choice. 99 percent are more than willing to do it... Basically the distribution network for product is controlled by the distributors, not Nintendo and not the retailers. If I didn't lose money on each sale of the console we wouldn't need to make bundles."
He also complains that they've only been able to purchase 15 Wii systems so far in December, and no Wiimotes or Wii Zappers in a long time. It's hard a business when you don't have the buying power of the chains, and bundles are one way to deal with it. "The key is not forcing them to buy a memory card or some crap they don't want," he tells me. He also says it's rough when practically every customer wants to buy the system to put it on eBay for their own profit.
It's a hard position to be in, and this is one of the reasons why independent game stores often focus on repair or selling used products. I thought it might be interesting to look at the this issue from the point of view of the little guy before trashing some really terrible behavior on the part of other stores tomorrow.
