Game consoles a hot sell, despite threat of shortage - supply and demand for Microsoft's X-Box and Nintendo's GameCube - Brief Article

DSN Retailing Today, Nov 5, 2001 by Doug Desjardins

NATIONWIDE DSNRT REPORT -- Retailers and analysts expect new video game consoles from Nintendo and Microsoft to drive consumers into stores during the holiday season despite launch delays and a potential shortage of hardware.

Microsoft will make its first foray into the $20 billion video game industry on Nov. 15 with the launch of its X-Box console for $299. Nintendo will how its new GameCube system on Nov. 18 for $199. Analysts say retailers should have no problem moving the pricey new consoles in spite of a sagging economy.

"The folks that will be waiting in line at Toys "R" Us the first day are people who planned long ago to buy one of these systems," said Ryan Jones, an analyst with Boston-based Yankee Group. "So the consoles are going to sell through no matter what condition the economy is in."

One problem retailers may have in November is getting enough units to satisfy demand, particularly with the X-Box. Nintendo pushed back its launch date for GameCube from Nov. 5 to Nov. 18 to ensure it would have 700,000 units available at launch instead of only 500,000. Microsoft, however, gave no explanation for pushing its launch date for X-Box from Nov. 8 to Nov. 15 and is rumored to have manufacturing problems that could cut its original launch goal of 600,000 units to as little as 300,000.

"We've heard retailers are asking Nintendo for more GameCube units because they're worried about not having enough of the X-Box," said Brian O'Rourke, a senior analyst for Cahners rn-Stat Group in Scottsdale, Ariz.

A Microsoft spokesman said the company has not announced how many X-Box units will be available at launch but will ship 100,000 to 150,000 units per week to retailers throughout the holidays. A spokeswoman for Nintendo said the company plans to ship up to 100,000 units of GameCube to retailers each week following the launch.

Retailers were reluctant to divulge how they plan to promote the game consoles during the holidays for competitive reasons but said they expect to sell the systems as quickly as they arrive in stores.

A spokeswoman for Best Buy said the chain is likely to "sell out of both systems on day one." A Kmart spokeswoman said the chain will have plenty of units available, and "they will probably sell through quickly" Circuit City spokesman Bill Cimino said both consoles are sure to be big draws and should be "popular throughout the holidays and beyond."

Both consoles are expected to drive much-needed traffic into retail outlets as video game fans rush into stores each week whenever new shipments arrive. Microsoft hopes to have between 1 million and 1.5 million units shipped to retailers by Dec. 31, and Nintendo said it will ship 1.1 million.

"Our survey shows 3% of American households plan to buy at least one of the new consoles during the holidays," said Jones. "And there are 125 million households. If you do the math, you'll see there probably won't be enough supply to meet demand."

Retailers will also benefit from consumers who make return trips to buy new games. Nintendo has a slate of 20 new games due for GameCube during the holidays, and Microsoft plans to release 15 to 20 new titles for the X-Box.

All three major game makers have massive advertising campaigns that will kick off in late October. Microsoft is spending $500 million to market X-Box in an 18-month worldwide campaign, while Nintendo has a 75 million program to promote GameCube during the holidays. Sony will spend an additional $250 million to promote a new slate of games and accessories for Playstation 2 and the original Playstation.

It remains to be seen how newcomer Microsoft will fare against industry veteran Nintendo. A recent study conducted by New York City-based research firm Alexander & Associates gives Nintendo the early edge. "We did a phone survey of 635 video game players and found there is a higher intent to buy across the board for GameCube," said research analyst Michael German.