Retail Store Scalping Wii Consoles on eBay 236
C0rinthian writes "ArsTechnica reports that the games retailer Slackers has been keeping their stock of the Nintendo Wii off their store shelves, and is instead selling the system on eBay for $400-500. (A $150-$250 markup)" This follows their look at the other side of the coin: why some retailers insist on Wii Bundles.
So what (Score:5, Interesting)
Why the shortage? (Score:3, Interesting)
What's up? Is their a particular component that is hard to come by or has a real low yield?
wrong much? (Score:1, Interesting)
Couple of quetions (Score:3, Interesting)
Re:So what (Score:4, Interesting)
Re:Selling them on eBay? (Score:4, Interesting)
Re:Couple of quetions (Score:4, Interesting)
You are totally right...they should be making money off of the games and accessories, not the console itself. That just makes sense. Needles are cheap...heroin, on the other hand...
Same thing with iPods. (Score:4, Interesting)
I forget exactly how much he said the profit was, but IIRC it was $2-3 on a top-end iPod (which was the 60 or 80GB model at the time). By the time you pay your staff to deal with the customer to explain features, etc, and make the sale, he'd already lost money. If the customer paid by credit card, he lost a lot more.
However, third-party accessories (skins/cases, FM tuners, headphones, etc) had significantly higher markup, and that's where the money is for retailers, just like games are for the Wii.
Re:Why the shortage? (Score:5, Interesting)
Does anyone have the inside scoop on why -- over a year after introducing this product -- Nintendo has not been able to ramp production up to meet demand? It wasn't a surprise that they couldn't meet demand last Christmas. But, this time around they've had a full year to get the production line up to speed.
I don't have the inside scoop but it isn't hard to see what is going on when you know a thing or two about business.
Suppose you are going into business for developing a widget and you have determined that you can sell the widget for $15. Now suppose that to make the widget you have two components: fixed cost and variable cost. The fixed cost you (almost) can't do anything about; whether you make 1 widget or 1 million this cost stays the same (later we'll see that isn't necessarily true, but it still works against you). Fixed cost would include something like the cost of the building for your factory. Even if your factory only produces one widget, you still gotta pay for the building. So then there's variable cost which as you might guess is the cost associated with each particular widget--it increases and decreases depending on how many widgets you make. Variable cost would include things like raw material or parts you buy from a supplier. When you order more, the cost goes up, when you order less, the cost goes down.
So let's say for your widgets, which are special widgets that only you know how to manufacture, have a variable cost of $5 but a fixed cost of $2,000,000 a month. And that fixed cost only applies to one factory that can make your widgets. Let say if you wanted two factories making widgets, your fixed cost would roughly double to $4,000,000 a month. But we'll only consider one factory for now. So how many widgets do you have to make and sell to break even? Simple, that's just the fixed cost divided by the contribution margin where the contribution margin is the sale price less the variable cost: $2,000,000 / ($15 - $5) = 200,000 units per a month.
Now throughout this we have not considered the capacity of the factory. So let's say that the factory can produce up to maximum of 300,000 units a month. Well, 300,000 is greater than your breakeven which is 200,000 units so you can actually make money off of this factory as long as it produces more than 200,000 and you sell all of those units. Easy enough.
But now you start selling your widget and notice that because your widget is really special, it is in hot demand. But you recognize that at some point, demand will drop when everyone who wants one of your widget will have one. So let's say demand for your widget turns out to be 400,000 units a month. HMMMM. We have a problem. Your single factory can only produce a maximum of 300,000 widgets per a month so in order to meet demand you would have to setup another factory to produce the remaining 100,000. If you setup the additional factory your fixed costs will jump to $4,000,000 instead of $2,000,000 a month. If we now recalculate your break-even point, it will be: $4,000,000 / ($15 - $5) = 400,000 units per a month. But you've already determined that demand is only 400,000 units a month so by setting up the additional factory, suddenly you are no longer making a profit!
To summarize:
ASSUMPTIONS
Fixed cost of factory: $2,000,000 a month
Factory capacity: 300,000 units a month
Variable cost per unit: $5
Actual product demand: 400,000 units a month
Selling price of the unit: $15
Break-even point on one factory: $2,000,000 / ($15 - $5) = 200,000 units
Profit on actual demand (meeting 75% of demand): (300,000 - 200,000) * ($15 - $5) = $1,000,000 a month
Break-even point on two factories: $4,000,000 / ($15 - $5) = 400,000 units
Profit on actual demand (meeting 100% of demand): (400,000 - 400,000) * ($15 - $5) = $0 a month
Nintendo's situation probably has vastly different numbers but the same concept applies. If the make a speci
Re:So what (Score:3, Interesting)
Yrs, but there are way around it. I do some consulting work for a 4x4 shop that sells a lot of hardware on the net. Many of their vendors have MAP pricing (Minimum Advertised Prices). Your cost (as a dealer) is set by how much volume you move - sell more, get lower prices. However, if you are selling below a certain price point, your purchase price goes up. If you keep lowballing the price, your cost will end up the same as the MAP pricing. You're welcome to sell as cheaply as you want, as long as you're willing to lose money on each sale. They are trying to make sure a shop that services, installs and understands their products can make the same money as some guy selling boxes out of his garage.
Re:So what (Score:4, Interesting)
"Retailers have already been given feedback that we are not big fans of that. We think it masks some of the price advantage we have versus our competition and, frankly, the consumer should decide what they want."
Re:MSRP vs Wholesale (Score:5, Interesting)
Which means I'm going to accept, without any further comment, his assertion that he "pays $246" for a Nintendo Wii console that he is supposed to sell at $249.95. I would not be the least bit surprised that he has a piece of paper somewhere that says so. And then I'm going to say that when he says he pays $246 for a console, you should not interpret that as meaning it costs him $246 for a console. If it does, he has no business being in the industry he's in.
He may be factoring in the cost of financing his buying from his wholesaler (or a company specializing in this field), but if all his inventory is off the floor plan then generally speaking he is not really making money and should get out. This is where you don't have the necessary financing so you use the inventory itself as collateral, and it's expensive financing; akin to a credit card rate for consumers compared to a bank loan rate.
Typically there is something associated with the floor plan he makes very decent profit on but he needs certain items around to get you to buy the other items, but whatever. I hope I don't have to say out loud what a game reseller would possibly have around that makes lots of profit when the consoles don't.
If he is financing his entire inventory this way he is in bigger trouble than slim console margins. Properly done, it's fine. You get $249.99 the very morning the truck drops off the items, and pay $246 some time in the near future. The $4 is yours at zero cost and zero outlay. That is profit any way you look at it. It limited by supply, but it's still profit.
The alternative is to use your own money (probably financed, but at a much, much lower rate) and seek to reduce your costs to the maximum. This is the better way to make money but your operation has to have the cash flow to do it.
In that case, the invoice price does not include any discounts he had damn well be taking advantage of if he plans to stay in business. One example: shipping discounts. These are based on a variety of factors and can vary from free shipping to a cash allowance that comes off that $246. Another: early payment discounts. Again, they vary, but if he is not paying his invoice quickly and getting the early payment discount then he should be doing something else. They vary widely, but one real-world example is take 10% off the invoice price if your payment is received within 5 days after delivery to you; others may not be so generous but they still give you something. There are volume discounts, there are deals you get at trade shows for your commitment to buy in the near future, there are cozy relationships with your supplier who may be selling you other things, which may be where the discount applies that otherwise would not had he not bought the consoles, and so on, but these are just the mundane details.
Note that if you are on the floor plan, the guy you pay the high interest rate to is the guy taking advantage of all these discounts, because he owns your inventory. A savvy reader will figure out how likely it is that this type of lender is going to pay $246 for a console that he sells for $246. Sure, that interest income is nice, but they are all about the money and don't leave any on the table if they can avoid it.
I'm not suggesting these exact opportunities exist with this exact transaction or line of business, but I am suggesting that the impossible is, well, impossible. So if the story about his cost versus his sale price is too tough to be believed, it probably
Re:So what (Score:3, Interesting)
Either you have a lot of unearned income, or... no you simply must have unearned income.
Comment removed (Score:3, Interesting)
NOT PRICE FIXING. SCOTUS ruling protects Nintendo (Score:5, Interesting)
The case was 'Leegin v. PSKS', and is summarized on the docket here:
http://docket.medill.northwestern.edu/archives/004185.php [northwestern.edu]
This ruling is intended to protect a manufacturers brand by keeping discounters from undercutting (and subsequently devaluing) the perception of the brand to the public. Think of Rolex - do you REALLY think it costs them $5,000 to make a Rolex? Of course not, but you aren't buying a Rolex, you are buying the name and the perceived social capital that comes with it.
Let's assume that the manufacturing cost of a Rolex watch is $1250. This watch is sold at wholesale to a retailer for $2500, and has an MSRP of $5000. This is a pretty common pattern (although less so for hi-tech devices).
Now, if Joe's Discount Watch Kiosk in the crappy mall at the other end of town started selling Rolex for $1279, the Rolex name gets diluted, the social prestige goes down, and when Joe's Discount Watch Kiosk closes, the long-term business who has invested in the community, the Rolex brand name, in employing people, and has built the business from the ground up can no longer sell the Rolex for $5000. They end up with reduced cash flow, have to cut their staff, dogs and cats start living together, and all hell breaks lose.
OK, it's not THAT bad, but from the 'real world' (tm) department, I own a specialty toy store. No really, I do. I employ about 15 people, sell at or near MSRP, invest in my community, and build social equity.
When a specialty brand that I have invested in sells to Amazon or Target, I can no longer sell the product, because they discount. So, I have to mark down to sell what I have already purchased. With my reduced margins, I cannot employ 15 people, I have to cut to 12 and make do. I am not selling $5000 watches, I am selling $25 dolls, $40 wooden blocks, etc. My net margins in a good year are about 12% after all expenses, which allows me to pay my mortgage and keep the kids fed and the lights on. When Target, for example, comes in, woos a brand, buys their product, and then discounts the crap out of it, I lose, the manufacturer loses, and the consumers win - for a few months. Then, the brand goes out of business, I have lost margin and as a small locally owned business have to lay off staff, and there is direct damage to the consumer because next year, Target has moved on, the brand is no longer in business, and I can't get it for my loyal customers.
I am 100% in favor of competition, good pricing, fairness to customers, but consumers also have to realize the high cost of discounting overall. This is why the SCOTUS ruling is actually good for business, and good for consumers in the LONG TERM.
Now, how does this apply to the Wii?
Well, the SCOTUS ruling, as I understand it (IANAL) does not specify just minimum pricing, but that a manufacturer can set PRICING. So, if Nintendo says $249.99, it's $249.99 for the console.
Whether or not the retailer is able to stay in business is between the retailer and Nintendo, but one would hope that Nintendo would eat some of the costs of the console to get it out to the public.
Just my pre-coffee, pre-busiest toy shopping day of the year rant.
Re:So what (Score:5, Interesting)
Between 2001 and 2007 I spent an average of $6000 a year on electronics including two big screen TV's and one regular TV given as a gift, three video cameras, four digital cameras, five mp3 players, six computers (I multi-box mmorgs), a large number of movies & television series (the sony one's I wanted, I waited and bought used for $5 instead of new for $19 to $50 dollars), two DVD recorders, and two or three VHS recorders. Previously a lot of that would have been sony products. I had a sony video camera, sony vcr, sony walkman, I think I had a panasonic TV. etc. going in to 2000.
I was also able to sway the digital projector decision at my work away from Sony projectors at the tune of about $12,250.
This all came from one rude customer service call over $50ish product. The customer service person was an ignorant idiot with no computer knowledge (basically a script head) and refused to accept the problem was with their product and their arrogant attitude and offer a refund or a fix and finally got rude and insulting. It might not have been a problem but we got the supervisor on the line and instead of being a good "this customer is pissed off and needs to be mollified" THEY got in my face as well. They were both very proud of sony products and probably shouldn't have been in customer service.
Sony is the only company of any significant size that ever pissed me off. Tho a minor electronics store did once. I bought a DVD drive. It was broken. I went to swap it and they said I had to have the original paper invoice- even tho they KNEW me and I had bought easily $1500 in computer parts from them. I told them I would never shop there again-- they had a stack of DVD drives behind the counter and could have swapped easily.
I'm not a hothead and I hold very few grudges but at this point, it would take a sony manager coming to my house and personally apologizing to get my teeth out of their neck.
Re:So what (Score:3, Interesting)
"your sentence is a little vague - who was convicted of price fixing, the record companies or best buy?. . ."
The record company. Specifically, Universal.
When Best Buy and Wal-Mart started selling CDs as loss leaders, some of the big music chains (Tower and TWE) freaked out. They couldn't match BBY and Wal-Mart pricing, as most of their business was from the sale of CDs.
So, Universal set them up with a MAP program (essentially what's already been discussed here): Universal would give them co-op ad money (ie. help fund newspaper ads and the like) in exchange for dictating the minimum price at which Tower and TWE could advertise (as with the anecdote about iPods, the stores could always sell at a lower price; they just could not advertise at a lower price). For what it's worth, countless companies -- even "good" companies like Apple -- have MAP programs.
Best Buy and Wal-Mart got wind of this and put pressure on the government. The government then bitch slapped Universal. Here's what happened next:
The lesson here: don't piss off Wal-Mart and Best Buy. The price fixing settlement was great news for people who believe in the "what's good for Wal-Mart is good for America" credo, particularly if they don't particularly miss the days when there was more of a selection of music retailers.
Re:NOT PRICE FIXING. SCOTUS ruling protects Ninten (Score:3, Interesting)
I like Target, too - they are the least offensive of the big box stores.
Consumers are strange beasts.
A great example of this is the recent furor over 'lead tainted toys'.
So, people complain that lead is in toys - rightfully - and that toys are made in China, etc, etc, and we are all going to hell in a handbasket.
I had a customer come in to our toy store in late November. Was very vocally complaining about how we sell toys made in China. She is carrying around a $14.99 Thomas the Tank Engine product, and pointing out that it's made in China, and why can't she get a good set of trains made in the USA.
I quietly point out to her that in the next rack, we proudly carry Whittle Stop Railroad, a 100% USA made product. She pulls out an engine from the peg, looks at the price, and starts complaining even LOUDER, '$29.99! This is over DOUBLE the cost of this one! That's highway robbery, how can you charge prices like this?'
This is, unfortunately, the conundrum that small business like mine are in - it's the classic triad.
Cheap, quality, or fast.
You can pick two and only two.
If it's made in the USA, labor and material costs are higher. Period, that's the way it is.
If it's made in China, it isn't necessarily dangerous, but you get a lower price.
The SCOTUS ruling allows specialty brands to remain specialty. It allows Nintendo to set the price of their gaming console, and not allow people to undercut or devalue the brand.
The 'high markup of specialty stores' is also a misnomer. I typically sell at MSRP. Target typically discounts, online discounts even more.
Many people at this point pull the 'if you can't compete, get out of the business' card (like a submitter above). People that say that obviously don't get free enterprise. It's not all about price, it's about choice, supply/demand, quality, and a myriad of other aspects that go beyond the simple product.