Lows Hardware
Wholesale Forecasts: Hardware Interest Wanes As Holidays Near
Nintendo's marked price drop on the GameCube may be the best merchandising idea of the holiday season, because Microsoft and Sony's decision to go with software bundling rather than discounting seems to have had little effect on retailer interest.
According to online wholesale business exchange WholesaleCentral, retailer interest in all of the console platforms took a noticeable dip in September and on the tail end of a steady decline throughout the year. The share of overall searches by retailers for PS2 suppliers continues to outpace sellers looking for Xbox and GameCube suppliers by a wide margin, but in September even PS2 searches dropped from .74% of all queries to about .5%. Both Xbox and GC queries are at about half the levels of PS2s, with Xbox edging out Nintendo. These figures precede Nintendo's announced price cut on its console, which the company says increased retailer orders substantially.
Overall retailer interest in hardware seems to have dropped noticeably over the past year. For instance, in August of 2002, fully 2.57% of all searches at WholesaleCentral were for one of the major game consoles. In August 2002, total searches for consoles amounted to 1.51%. Not only are hardware sales hitting a plateau and perhaps nearing saturation points, but they are also competing for consumer attention against an onslaught of digital and entertainment devices. In its overall ranking of consumer electronic searches in September, "Television" was the most common category. The good news is the PS2 is the second most searched item at the site, followed by digital cameras, batteries and video games.
WholesaleCentral.com is an exchange that matches medium and small retailers with wholesalers. Nevertheless, the company says statistics from its search engine correlates with video game market share. In tracking its search data over the course of the past year, WholesaleCentral found that the relative shares of searches by retailers for console brands matched almost exactly the sales shares reported by NPD several months later. According to Scott Sumner, CEO and founder, WholesaleCentral, "The independent retailer is a less inventoried operation, and they have a lot less warehouse space. They tend to buy [from wholesalers] closer to sale." As a result, the August and September retailer search figures are predictive of holiday sales.
The most striking set of numbers surrounds the general trending for hardware this year. According to WholesaleCentral's month-to-month figures for 2002, the interest in gaming hardware among independent retailers in 2003 has steadily declined. In early 2002, interest in Xbox and PS2 consoles spiked after late-winter price cuts, then plummeted to summer lows. Things picked back up again by mid-summer, however, where it spiked again, predictably, for the holiday season.
This year is a wholly different story. Interest among retailers looking for console wholesalers declined from a January high and only rebounded slightly this summer before going south again in September to its lowest point in 2003 for all three consoles. The September figure could well indicate a lull in retailer interest just before the October ramp-up for the holidays, since there was a slight decrease in interest for hardware in September 2002 for Xbox and GameCube. Nevertheless, it is notable that the nominal price cuts announced at E3 in May had no effect at all on hardware demand, confirming analysis at the time that it takes more dramatic discounting to move the needle on hardware.
While the Microsoft Xbox continues to lag the PS2 substantially in retailer interest and overall market share, this platform has shown the best resilience of the big three, with a more shallow drop-off in interest among retailers than the PS2 or GameCube. In September, Xbox was the seventh most searched item at WholesaleCentral. com, while GameBoy was 31st and GameCube was 38th. No doubt, Nintendo's discounting will shift the numbers at least temporarily in October, but the longer trend suggests that Microsoft has gained momentum and mindshare this year.
The best news for the Xbox is in the growing share of interest it is generating among retailers. When broken down by shares, retailer searches for the PS2 in September represented 60% of searches for the video game category, while the Xbox was at 27%. The GameCube (4%) was outsearched substantially by Nintendo's own GameBoy (9% in total). While Nintendo is already saying that it is outselling the PS2 in the short period since it reduced GameCube pricing, the company clearly needs to turn around retailer sentiment.
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