Alright now that I have lured you in with my "read me!" title, this is not that game related, but thought this NPD blog post was interesting anyway, any thoughts on this and how it factors in to our video games numbers discussions?

Shipments Are Not Sales

Friday, May 4th, 2012
By Stephen Baker, Vice President, Industry Analysis

Shipments are not sales, seems like a pretty simple concept to grasp, but it’s apparent from the hysteria that has erupted over IDC’s release of their Q1 tablet shipment data that most of the blogosphere still doesn’t get the difference.  We detailed this phenomenon two years ago and still no one can get it right, so I will say it again shipments are not sales - and therefore they present only a partial account of the success or failure of a product or an item.  Shipments are important and course NPD recognizes this by providing supply side shipment data through NPD DisplaySearch but without sales you just have inventory, and that does no one any good.

This current firestorm around the Kindle Fire numbers is a perfect example of how mistaking shipments for sales leads the market to incorrect and faulty conclusions about trends and opportunities.  In this case my friends at IDC reported that the Fire shipped 750k units in Q1 2012 following the introduction of the Fire in Q4 2011 when 4.8 million units shipped. (NPD DisplaySearch reported 5 million shipped in Q4.)  That’s a total of 5.5 million shipments over the first two quarters of its product life (please remember that number).   While it may appear that sales for the Fire fell off a cliff in Q1 that would only be the case if shipments actually equaled sales.  And since they don’t, any analysis that might indicate the Fire is losing ground is fundamentally flawed, especially since the Fire is only through two quarters of its life. 

In the Kindle Fire’s first quarter of availability IDC’s reported shipments of 4.8m most certainly included the normal inventory build-up a new item requires.  The Fire was distributed in something around 10 thousand stores in the U.S. at launch and certainly Amazon’s warehouses needed some inventory too.  Let’s not forget it was the fourth quarter when sales tend to rise dramatically.  So Amazon, rightly, built a lot of Kindle Fires and shipped them out to its warehouses and its retail partners to take advantage of fourth quarter volume.  Logically there will be inventory remaining and shipment volumes will decline in the following quarter as the inventory to support Q1 sales is partially satisfied by the remaining inventory from Q4.  And of course that is exactly what IDC’s numbers show; a seasonal change in volume and a sell-down of inventory accumulated in the fourth quarter. These numbers don’t measure sales volume of the Kindle Fire in the first quarter, rather they measure the small amount of inventory buildup Amazon needed to do in Q1 to replenish inventories.

So how did the Kindle Fire do in the first quarter of 2012, pretty darn well thank you very much.  According to NPD’s Consumer Tracking Service the Kindle actually sold (there is that word again, this time properly used) 1.8m units in the first quarter.  That is an actual consumer bought it and took it home (or had it delivered) and paid their own real money.  It was not a sale from Amazon to a retailer for their inventory to support sales, nor was it Amazon replenishing the warehouse stock it controls for its own sales; it was a consumer spending their money to acquire the product.  Looking back in Q4 2011 NPD’s Consumer Tracking Service counted 3.8m Kindles sold during the holiday period.  And if you add up those two sales figures you get a number almost exactly the same as IDC’s shipment number that we referenced earlier.  And looking at the numbers from that actual sales perspective the concept that Kindle Fire sales collapsed in Q1 becomes absurd.

No matter how we frame it, or how others may spin it, the Kindle Fire had a pretty good second quarter of sales results.  And as important as shipment tracking is, it is an incomplete number without the power of actual sales behind it.  And of course we at NPD know something about that. 

The whole PS3 launch didn't help matters here regarding this confusion. Sony's change in the method of tracking shipments meant that after March 2007 there were at least 3 different figures floating around about how much it had "sold"... there was the 2.7/2.8 million VGC reported as sold (American and Japan figures were consistent with NPD/Fam/MC and as the PAL launch had some figures released by GfK the VGC figure should have been understood as a close estimate) then the 3.75 million figure (I can't be bothered researching to get it exactly but it was around there) that was what we normally understand to be shipped, ie out of Sony's hands but not yet into consumers as well as Sony's older method of reporting their internal shipments which totaled 5.5 million. The internet media as usual didn't help matters with many "news" articles claiming one or the other type of shipment figure as definitive sales. (Also not helped when one Sony spokesman mistakenly mentioned another number of 6 million)

I think by now, particularly after the whole UDraw fiasco, the general population of VGChartz at least understands the difference. The problem still remains on a wider scale because an article on the internet is often deemed as proof because people can't be bothered, or are unable to research the facts behind it.

No, sales does not not mean shipped!

Sony sells a PS3 to a retailer, which we would count as shipped. So the way I see it, if Sony tells us they have sold a console this simply refers to a console that they have sold to a retailer. Only if they specify "sold to consumer" then we can think of it as that

It just depends how exactly they define what they mean

It's not, but to me they're more important. And therefore the real war is shipment war. You just need more patience to follow it, but on the plus side it's as precise as it can be.

Items sitting on the shelf as shipped will usually, eventually be sold.

(The last time I remember a major recall of unsold stock was Imagic calling back Intellivision games. It probably has happened since then, but I didn't get the chance to buy those games for close to 15 years, so it is burned into my memory. Then again, if you hunt well enough, you could find SMS games at stores after 2000 and Wal-Marts with NGC Bongos today.).

The difference though is the mark-down that the retailer has to make to move the item and/or the rebate the wholesaler/distributor/manufacturer has to provide the retailer for the product that does not move. Of course, those eventual sales turn up in the sales calculations, further muddying the waters.

(This makes most Nintendo games very remarkable as they typically don't get markdowns as quickly or as severely. And I just don't mean first party. Look at MW: Black Ops and see how much the Wii version still costs.)

[On a side note, this price drop phenomenon is why GameStop often pays so little for games and sells them at such a high margin. When a AAA hot-seller goes from $50/$60 to $30/$40 after a few months, and GS paid $25/$30 in trade-in for a used copy it can't move for more than $26/$35 -- that becomes a razor thin margin which is not enough to pay the rent, utilities, taxes, and employees. And when it falls below what GS paid for the game, it is even worse.]

Mike from Morgantown

I think that price drop problem seems to be less in the US than the UK, it is rare that you won't get a brand new game for about half price within a month of launch, my friend picked up Mass Effect 3 for £18 (if I remember correctly) 2-3 weeks after it came out! So I think this is a problem, but from Gamestop's perspective, they are probably paying a similar price for the used version as they pay to actually get stock of the game (probably $5-10 lower), so it should kind of work out for them... I am sure they will adjust their trade in price based on how the stock is moving given this problem