Slashdot Mirror
Retail Store Scalping Wii Consoles on eBay
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.
Are they not allowed to do to sell them on eBay? Legally it's fine. Nintendo doesn't want them to, but they have to be very careful about cutting off shipments or Nintendo could get busted for price fixing.
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.
What's up? Is their a particular component that is hard to come by or has a real low yield?
I just searched, there's at least 10 brand new consoles, perfectly functional with at least one controller on ebay BUY IT NOW for under $325. So if they have them listed for more, they're not selling them are they?
Google's Super Secret Search Algorithm: SELECT @search_results FROM internet WHERE @search_results = 'good'
Why even bother selling the Wii's on ebay (and paying ebay fees)? These things are in such great demand why not price them based on what the market will stand. They've proven that a market is there for Wii's at $399 - why not sell them for that in the store? Oh, and the reason that retailers only make $4 margin of each Wii is that they make it back in other ways (same way car dealers make money even when they sell cars for way under sticker price and will happily show you paperwork that they only make $100 over dealer invoice - facory incentives that are accounted for in many other ways). How - the margin on games is much deeper. Sell the console for cost and then make out like bandits on games (razor and razor blades; printers and cartridges etc)
Rich people are eccentric. Poor people are strange. Me, I'd be happy with odd.
Why set up a dummy company? I know creative labs, for instance, has their own ebay presence, and the account name is "creative-labs" or something, with thousands of feedback. Sometimes they sell for a fixed price, sometimes they take best offers, and sometimes they start the auction at 20% below MSRP and let it go to whatever.
I have a friend who was a manager of a computer retail store, including a full line of Apple products. iPods are *exactly* the same situation as Wii consoles are -- retailers make absolutely nothing on them, and either you play by Apple's pricing rules or you get cut off.
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.
Let me just say right off the bat that I do not have any special information regarding the pricing of Nintendo products. What I do have is years of experience as an owner of a reasonably successful electronics reseller. We didn't sell consoles or games, but the industry is not so different that there is going to be that much difference. I won't offer anything in the way of secrets or inside information, so you will have to read between the lines, but broadly speaking some or all of this is going to apply. Guaranteed.
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
The Supreme Court of the US ruled earlier this year that a manufacturer can set pricing for their product, and enforce retailers to sell at that price. This ruling was primarily to protect 'high end' products from discounters, but goes both ways.
The case was 'Leegin v. PSKS', and is summarized on the docket here:
http://docket.medill.northwestern.edu/archives/004185.php
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.
Weaseling out of things is important to learn. It's what separates us from the animals... except the weasel. -
"Target has moved on" refers to them finding other brands, not closing.
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.
Weaseling out of things is important to learn. It's what separates us from the animals... except the weasel. -