They underutilize their other IPs if anything. A new Zelda comes out once every 4 years and I haven't seen a new Star Fox in a while or F-zero. When you have millions of fans eating out of the cusp of their hands with every NSMB, MK and Pokemon game, what reason do Nintendo have to innovate with new or older dormant IPs? I'd blame the consumer, not Nintendo. They probably saw the sales of Kid Icarus and thought bugger it.
Also I think the general consensus is that Mario is overused, not so much all their other IPs. Nintendo adhere to a 'if it aint broke don't fix it' mentality for their games so even if a game has been in development for many years, people will probably still call it a rehash and complain about Nintendo's overuse of characters.
My argument only applies to games of course. I don't think i've ever seen Nintendo merchandise other than what's available from Club Nintendo. Though the 90s was rife with Nintendo stuffs.
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