Why Can't You Get Your Hands on Amiibos?

Why Can't You Get Your Hands on Amiibos?

Nintendo is looking to reverse three years of losses, and that means playing conservatively.

Anyone who's caught the Amiibo bug knows that half the fun is the hunt. Finding a Marth or a Wii Fit Trainer on a pegboard in an actual, retail environment must be what it's like for a bird watcher to catch a glimpse of a rare or out-of-region bird at their feeder.

As exciting as the hunt is for some, others would rather just complete their collection at any cost, and turn to the grey market to pick up one of the toys at a price much higher than retail. What gives? Why are some Amiibos so hard to find?

The short answer: Nintendo is looking to reverse its losses, losses that have plagued the company for three consecutive years. Losses that represented the first time in the company's long history it posted a loss. Without strong hardware sales, the best hope is to play things conservatively, and cut costs wherever possible.

Imagine a financial quarter where Nintendo has sold 100 Amiibos at $2 each. They've made $200 in net sales. Now, imagine they have 50 Amiibo left, at a cost to Nintendo of $1 each. They began the quarter with 150 Amiibos in their inventory, or $150 worth. They decreased their inventory by $100, leaving them with $50 worth of Amiibos. In this scenario, they didn't purchase any more Amiibos to hold in their inventory.

The only Amiibo many people have ever seen in the wild.

Yeah, OK, it's accounting. But hear it through.

Inventory at the beginning of a period plus inventory purchased, minus inventory at the end of a period equals what's known as "cost of goods sold." In this instance: 150 + 0 - 50 = 100. So cost of goods sold, or "COGS," is then subtracted from net sales, giving gross profit. Gross profits are net profits minus costs. In this simplified example, the $200 in net sales is reduced by $100 in costs, giving Nintendo a gross margin of $100.

Now imagine if Nintendo purchased more Amiibos. That $0 figure becomes, say, $100. The equation now becomes 150 + 100 - 50, which equals $200 in COGS. If they still only sold 100 Amiibos for $200, their gross margin is now $0.

It's pretty easy to see that a gross margin of $100 is more desirable than a gross margin of $0, which is why Nintendo played it safe with the production of Amiibos.

There are other obvious signs Nintendo is risk-averse going into the final quarter of its fiscal year. Club Nintendo rewards for Platinum and Gold status members caused somewhat of an uproar when it was revealed they would be digital-only. But the cost to Nintendo is then limited almost entirely to bandwidth. Physical items, as have been rewarded in the past, not only have per-unit manufacturing costs, but there are also costs involved in shipping and storing the inventory of prizes. By going digital-only, Nintendo distributed product it already had, in a format that allows for limitless duplication with what is essentially no-cost.

AKA "The Pegwarmers"

Nintendo's out-of-the-blue announcement of the shuttering of the much-loved loyalty program is further evidence that it's trimming the fat. The information it gleaned from user submitted surveys is no longer worth the price of holding inventory for products it doesn't even sell. All those exclusive rewards take up space in warehouses somewhere, and the always-free shipping is another cost Nintendo had to swallow. The logistics of running a warehouse, along with the opportunity cost incurred by keeping shelf-space dedicated to product that loses money for the company, instead of having that space for future moneymakers like the next wave of Amiibos, means Club Nintendo erodes the bottom line.

But there's one more decision that Nintendo has made that reflects on its undeclared commitment to increasing revenue, and that's the New 3DSXL-only North American release. Lots of theories have been bandied about as to the reason Nintendo has decided to leave North America with no choice in the matter of owning the latest 3DS hardware revision. But the simplest explanation, and therefore the most likely (if that Occam guy is too be believed) is that the New 3DSXL likely has better margins than its smaller counterpart, and therefore can can make more money for the company in the large, North American market.

As much as the Nintendo faithful would love to see Nintendo's revenue boosted on the back of increased Wii U sales, and December was the Wii U's most successful month ever, in order to maximize revenue, Nintendo needs to take control of what it can. This means playing conservative with new products and getting rid of what doesn't work. Hopefully it pays off for the company, because doesn't everyone want Nintendo to succeed?

Thanks to Eric Sayour for running the numbers.

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