Wired wrote an interesting article a while back about an amiibo bubble. The article cites a few reasons for why they believe this is the case: retailers having to carry too much stock, replacing amiibo with new lines (or waves), and the perspective from consumers that the newest amiibo will be gone. What this has done is lured in resellers trying to make a quick buck by buying up the already limited stock and reselling them on Ebay for an exorbitant mark-up. As I write this, Rosalina amiibo are selling for 40 dollars on Ebay. So, I want to explore this issue a bit more using some economic theories, the events that led to the burst of the Beanie Baby bubble, and how Nintendo can address this issue before it kills the goose that laid the golden egg.
Amiibo Success Story
Nintendo has reported that consumers have purchased 3.5 million amiibo figures in a few short weeks. Furthermore, the attach rate is nearly two figures per copy of Super Smash Bros for Wii U. It’s clear the initial response to amiibo has been warm. Nintendo president, Satoru Iwata, has discussed his plans to expand Nintendo’s business, on top of development. In describing his plan, he stated “we intend to simultaneously challenge ourselves with new endeavors which include our plan to take advantage of smart devices, more aggressive use of Nintendo’s character IP and our new QOL improvement platform business.” amiibo seems to be but one way for Nintendo to expand their IPs. With Nintendo promoting toys of Nintendo characters, it’s no surprise they decided to launch amiibo with the Super Smash Bros. series. This is one of the first times fans can get toys of Nintendo characters, from famous characters like Mario and Pikachu to more obscure ones like Captain Falcon and Marth.
I’m sure you are all aware of Supply and Demand, the most recognizable theory of Economics. Essentially, the price we are willing to pay is both a function of demand (how much we want) and supply (how much is available). The price for a good or service will be where supply and demand meet, which we call equilibrium. This is all well and good, in theory. Sometimes, it doesn’t always work out like that. What if how much we want, given a certain price, is more that what the market has to offer. That’s when we have a shortage. Think of a hurricane; everyone is trying to get supplies all at once. There is a lot of demand for extra food, water, and other essentials. But since the current supply can not handle the demand of consumers, we have a shortage.
And that is what is going on with the amiibo right now. We want more than what the market has available. However, this has also caused the price of amiibo on the secondary market to skyrocket. The exorberant prices are the market’s way to have demand match supply. With price increasing to $40, the quantity demanded falls and supply and demand reaches equilibrium.
So what caused the shortage in the first place? On one hand, demand for amiibo was far greater than what Nintendo anticipated. This would make sense given the high attach rate and sales of amiibo sales so far. However, the issue may be due to a lack of supply. The port strikes in California have halted the shipment of goods from Asia, including amiibo. Furthermore, the high demand was not anticipated by Nintendo. Satoru Iwata stated, “Some figures are sold out and are being sold at online auctions at premium prices – something which none of us had predicted.” Overall, it appears the issue is a lack of supply. This is reflected by Satoru Iwata who stated
The Beanie Baby Bubble
The Beanie Baby is one of the most successful plush toys ever. In 1997, 64 percent of households owned at least one Beanie Baby. However, Beanie Babies eventually went from huge success to just another fad. Even the rarest Beanie Baby, once going for hundreds of dollars, was later sold in dollar stores and flea markets. What happened?
Beanie Baby collecting became a huge part of the craze with consumers paying out the wazoo for Beanie Babies. The collector craze first started when Lovely the Sheep was discontinued due to issues with the company’s Chinese supplier. However, instead of being forward with the issue, Beanie Baby creator Ty Warner said Lovely was “retired.” This move caused consumers to be delighted by the fact that the toy they purchased may be worth far more than what they paid. This started a practice of retiring Beanie Babies and turned Beanie Babies into less of a toy and more of an investment. Soon, everyone was buying Beanie Babies in hope of reselling them and netting a tidy profit.
What had happened is Beanie Babies were becoming less of a toy and more of an item to collect and resell for profits. Hopeful collectors invested thousands on Beanie Babies in hopes of making a nice return on their investment. Although there were a handful of success stories, many lost their shirts on trying to flip Beanie Babies. In the end, the retiring and creation of new Beanie Babies created too much supply than consumers could handle. Eventually, the once rare Beanie Babies were cheap and easy to find. In every economic bubble, asset prices inflate until they become too much for the market to bear. The greater fool theory sets in and assets are sold to some other fool, hoping to create a greater profit than the first. Beanie Babies declined because they were no longer toys. When the market becomes only other collectors trying to make a quick buck, it becomes unsustainable. No longer is there a base of consumers who purchase the toy based on their inherent value and not their value to turn a profit.
Avoiding the Bubble
The amiibo are going the way of the Beanie Baby. Even before Wave 4 is released, it is almost impossible to find the newest amiibo. Even before its release, the Jigglypuff amiibo has become scarce with online pre-orders selling out near instantaneously. Its has already become well understood among consumers that your favorite amiibo will likely not be available. Nintendo will need to rope in the amiibo craze before the bubble burst.
But how? The first thing Nintendo needs to do is control supply. Nintendo’s retirement practice has been a result of trying to sell toys for each of the 50+ characters in Smash. Rather than having a huge stock of less known characters and taking up a large amount of shelf space. However, this has led to the collection craze of amiibo as consumers know some amiibo will no longer be available. As stated above, increasing the supply of amiibo will bring the shortage of select amiibo into equilibrium. However, simply resupplying stores with the rarer amiibo may only be a temporary fix. There still remains the issue of why Nintendo retired certain amiibo. Stores can’t large stocks of amiibo that may only sell to a small amount of consumers.
As the Wired article suggest, Nintendo should begin selling amiibo online through an amiibo store website. This will allow Nintendo to control the supply of amiibo and circumvent the issue of retail space. Furthermore, Nintendo could utilize Just-in-time inventory, where new amiibo are made to match customers orders with toys not staying in the warehouses for long, if at all. This will reduce the risk of over supplying rare amiibo characters like Ness and Ike.
The other thing Nintendo must do is make sure the amiibo are valued as accessories, and not as investments. Nintendo appears to be doing this, as many of their games shown off in the new Nintendo Direct have amiibo support. By making sure the amiibo have value in the game, the company can ensure that consumers will keep purchasing amiibo for the game and not just to resell. However, on the other hand, Nintendo appears to be going down the same path, as they have made a Gold Mario amiibo which has no practical purpose in-game besides being gold. Furthermore, rumor is Nintendo will also be releasing a Silver Mario amiibo as well.
So far, amiibo have been a success and have helped Nintendo escape the financial black hole they have been in for the last few years. amiibo have potential to be a sustainable source of income for the company. However, they have to recognize the issue at hand. It doesn’t seem like they do as their solution is to simply restock some rare amiibo and tell customers to “stay tune.” The current trend of amiibo is mirroring the rise and fall of the Beanie Babies and it doesn’t seem to be changing anytime soon. If Nintendo wants to keep the amiibo success going, they need to address the issues before it gets out of hand. If not, it won’t be long until that $40 amiibo becomes $3 sitting along side Gamestop’s other Pre-owned accessories.
Thoughts? Comments? Questions? Feel free to write all of that in the comments below. Hope you enjoyed the article.