Proof Nintendo Switch Shortages Aren’t Artificial

Nintendo isn’t reducing supply to increase demand, the Switch is just successful

Nintendo Switch is hard to find worldwide with some stores reporting frenzy conditions whenever a shipment arrives. As disappointed fans left empty handed take to the internet to vent their rage, accusations of Nintendo holding back shipments to increase demand has falsely become the narrative.

The idea goes that Nintendo is sitting on a warehouse full of Nintendo Switch consoles, only releasing a few to retailers around the world. As you miss your chance to buy one you complain vocally, raising the awareness of the Switch in your temper tantrum. The lines, then, get bigger and bigger every time word gets out that the Switch is in stock.

It’s not without precedent. The diamond industry is known for its monopsony roots where the De Beers company once controlled the distribution of all diamonds in the world, hoarding warehouses of the precious gem and only releasing a small fraction to the market to control their high price, a practise apparently still rampant in that industry.

But is that what Nintendo is up to?

We can get a glimpse into Nintendo’s plans for world domination by poring over its earnings reports. Specifically, the inventories line. Inventories is the company’s goods on hand. This can include raw materials, manufacturing supplies, work in progress and finished goods. It’s worth keeping track of inventories with the aim of striking a balance between holding too much (and paying high warehousing costs) and hoarding too much stock, thus missing out on sales.

As you can see, Nintendo’s inventories stayed about the same at March 31, 2017 (¥39.12 Million or AU$468,000) compared to March 31, 2016 — dropping a little. In other words Nintendo has the same amount of stuff in their warehouse than they did the previous year.

Let’s put that number into perspective by looking at the 2014 and 2015 financial years. We have to remember at that time Nintendo was still hopefully optimistic about Wii U in 2013 (FY ending March 2014), but the reality of its lagging sales was very apparent in 2014 (FY15).

At the end of March in 2014, Nintendo had around AU$1.9 Million worth of inventory as it prepared to roll out the New Nintendo 3DS/XL, reducing that amount to about AU$900,000 by the end of 2015.

If we go back even further — say, as far back as the launch of the Wii — we can see a similar story.

Nintendo DS arrived in 2005 and we can see Nintendo beefing up its inventory, but also preparing for the Wii launch launch in 2006.

And to try to keep up with now two hit products, inventory increased yet again in 2008.

So by March 2008, Wii pandemonium was at its fever pitch and we can see that Nintendo was only hoarding AU$1.2 Million worth of inventory to keep up with demand (remember, inventory is finished products and materials etc to make products).

It’s also worth pointing out that all these numbers are current as of midnight on March 31 in their respective years. We can also drill down deeper into quarterly results to see how the company is dealing with stock on a rolling basis, though it is possible for Nintendo to increase and decrease inventory before it has to report the numbers at the end of the quarter or year.

Nintendo Switch launched on March 3, 2017 so it would be nice to know how much inventory was sitting in warehouses mid-February. The only people who can tell us that are the accountants in Kyoto, but we thankfully know that Nintendo had a minuscule amount (about AU$467,000 worth in total) by the end of March 2017.

What this all tells us is this: if Nintendo was holding back Nintendo Switch stock three weeks after its launch, it wasn’t keeping it at any of its warehouses. And while its fun to imagine Miyamoto’s house stuffed to the ceiling with millions of Switch consoles as the company desperately tries to save money on Kennards Storage purchases as part of a nefarious scheme to disappoint 15 year old boys around the world, it’s far more likely — and believable — that Nintendo has a hit on its hands.