While the trade price increase on the Nintendo Wii in the U.K. is "perfectly justified," according to one analyst, it could put damaging pressure on specialist videogame retailers in the country as they struggle to compete with large "superstores" in increasingly harsh conditions.
Nintendo announced on Wednesday that it would be increasing the "trade price" of the Wii - the cost of the hardware to retailers - by roughly ₤18-20 ($25-28) per unit, a change made necessary by the tumbling exchange rate of the Japanese yen to the pound sterling. The yen has lost 30 to 40 percent of its value against the pound, said Screen Digest analyst Ed Barton, which has cut deeply into Nintendo's operating profit. He added that the hike could just be the start, saying the cost on the Wii Fit could also see a jump in the near future. "The margin on games hardware and peripherals is a serious problem right now," he said.
The increase in trade price is no guarantee that consumers in the country will also see rising prices; as Barton noted, retailers could choose to eat the difference in order to protect their traffic numbers and stay competitive with other sellers. But this could be trouble for smaller retailers who specialize in videogames, who aren't able to absorb such losses as easily as major non-specialist retail chains.
"Games consoles are relatively large items, these aren't the cheapest things to be keeping in store rooms and moving around the country," Barton said. "So I think we're going to see a great deal of pressure on specialists."
"For all the UK retail industry, an £18-19 ($25-27) climb in trade prices will be enough to wipe out the margins completely," he continued. "System sales are never usually the best thing for specialist retailers anyway, in terms of margins, but at least the retailer has that icing where customers tend to pick up other products with the consoles."
And while many potential Wii buyers may be more inclined to purchase the console at large retail chains anyway, if videogame specialists don't hold the line on prices they risk losing out on a major loss leader. The potential trouble will be exacerbated if other Nintendo products like the Wii Fit also see trade price increases; the company warned in its announcement that new software releases could also see higher trade prices.
At this point, most retailers in the U.K. have declined to comment on their response to the increase, saying they "need more time" to consider their options.