Shipped versus Sold.

Discussion in 'Console Industry' started by bkilian, Mar 3, 2011.

  1. DuckThor Evil

    DuckThor Evil Anas platyrhynchos
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    This doesn't make a whole lot of sense or I'm misreading...
    A retailer has x amount of consoles and when the supply runs low they order more. First console in first console out. Total sell out doesn't happen in normal situation when stock can be replenished, because new shipment has arrived before the old consoles are completely out.

    Dobwal and Nathansfortune said that you can expect the total buffer in the market to be approximately one month of sales, and that is probaly very close to the truth.
     
  2. Scott_Arm

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    Yeah, that's what I mean. You're going to get new ones in before the old ones are sold out, so even though it isn't the exact same units, there will always be some quantity of units that remain unsold. It would be a small number, on average, but multiplied by the massive number of retailers worldwide, and you could still end up with a lot of units.
     
  3. NathansFortune

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    The 3-4 week figure usually includes stock on store shelves, you don't really need to provision for it as the distributor warehouse is normally quite close to the retailer warehouses. The Sony buffer is spread around distributor warehouses all over the area and replenished on a regular basis.

    Yes, from what I have read the injunction is only applicable to the Netherlands so importing consoles to Southampton or Callais would not be covered. LG have basically taken advantage of a prosecution friendly regime in Europe (gulity until proven innocent) which bans first and asks questions later, Sony did it in the US which goes the opposite way around. I think it shows which company has valid complaints and which doesn't.
     
  4. Shifty Geezer

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    Okay, so the Sony buffer is very shallow, effectively being the retialer warehouses? In which case the amount of stock is very unlikely to be much beyond a million or two.

    This is useful for understanding the whole shipped/sold numbers. Is it fair to say installed user base for any console is all of two million less than total shipped/sold?
     
  5. NathansFortune

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    Usually around a million or so. This is the reason we have shortages every year after Xmas, especially if the holiday has been particularly successful (Xbox this year, Wii most years, PS3 last year). Keeping stock in distributor warehouses is an expense no one wants to pay for.

    If LG lose the case (which it probably will) they will have to pay damages to Sony for the inconvenience, to the courts and authorities for the seizure and storage of the 100k PS3s and a fine for abusing the system. All in all it could be a bill of around €50m for LG, and their ploy of trying to force Sony to the negotiating table doesn't seem to have worked.
     
  6. DuckThor Evil

    DuckThor Evil Anas platyrhynchos
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    I don't think it's fair to say that the units remain unsold, because they are sold and are actually the next in line to go out. but yeah I understand what you mean, most stores have some stock at all times and those combined worldwide is a very large portion of the units that are in the channel.
     
    #26 DuckThor Evil, Mar 4, 2011
    Last edited by a moderator: Mar 4, 2011
  7. kagemaru

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    I thought MS and Sony have information regarding systems sold at retailer.

    The last time I had to send my older 360 in for repair, the rep new exactly what day I purchased my 360 even though I never registered it. I just gave them the console ID number and he had the purchase date right there.
     
  8. corduroygt

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    Did you connect to live on the same day you bought your console?
     
  9. AzBat

    AzBat Agent of the Bat
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    You don't have to connect to Live to register it either. They scan the bar code next to the console ID on the back when you purchase it. Microsoft knows exactly how many they have sold at least in the US.

    Tommy McClain
     
  10. swym

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    Don't be naive: Microsoft (nor any other company) doesn't link each and every retail store to their database and pull out information at real time, simply because no retail chain will allow that.
    Microsoft and the others might know when a retailer is about to run out of stock and asks for additional units, but that is it. Otherwise they wouldn't wait for NPD stats to announce how many units were approximately sold to customers every month.

    Every time a company announces number of units, it means shipped to stores. The only exception is obviously digital distribution (where you control the distribution yourself, or where the distributor is kind enough to share this information with you in real time.
     
  11. dobwal

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    You're being naive. A retailer has no need to withhold sales numbers info from the manufacturer of a product that manufacturer provides them. Realtime sale through numbers provides the manufacturer/distributors with your realtime supply needs. Certain companies like Coke and Wonderbread even go so far as manage the retailers inventory by stocking the shelves of grocery stores themselves. There is no reason for a retailer to obscure sale through number from a manufacturer/distributor. The problem probably lies that every retailer/distributor is not going to have a system sophiscated enough to generate realtime data to account for every 360 sold through US retail.

    You believe that MS is believing NPD data on NPD's word. The first thing MS, Sony and Nintendo probably did was check NPD's data against their own numbers to ensure validity. Given thats NPD is an independent third party and its numbers are seen as reliable, there is no reason for MS to release monthly numbers. Why waste the effort of reporting numbers that someone else does reliably at no cost to you?
     
    #31 dobwal, Mar 14, 2011
    Last edited by a moderator: Mar 14, 2011
  12. Prophecy2k

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    Dobwal i think the bolded was the main point swym was making. So in effect you're both agreeing on the same point... he's certainly not being naive and in his defence he did say "every" retailer, qualifying his arguement.

    The original comment was that MS know "exactly" how many xbox 360s are sold at retail, and whilst it may be true for big outlets in the US like gamestop who may (or may not) have sophisticated enough systems to keep record and produce data for MS in realtime, it's naive to think that MS has that ability with every retailer that sells 360s. You both have said as much.

    It's likely that MS has some data and then waits for NPD to validate it.
     
  13. dobwal

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    I don't have problem with the main point that the 360 can't track every sale. I have a problem with the assertion that "no Microsoft (nor any other company) doesn't link each and every retail store to their database and pull out information at real time, simply because no retail chain will allow that." And somehow NPD monthly data in lieu of MS monthly data as proof of that inability.

    The fact is that MS can't track either every 360 sale in realtime. It probably does with the big name B&Ms and online stores as it allows for a more efficient supply chain. But those 360s that go to small time B&M and online shops who purchase through distributors are probably hard to track in realtime. However, these small shops makes up a very small portion of monthly sales. Even then MS may still be getting hold to these sales number eventually especially for those shops that maintain a return policy.

    Furthermore, NPD can't track every sale either and does alot of estimating and projecting. MS has the relationships and the resources to more throughly track retail 360 sales than NPD. NPD's value to MS isn't telling them how many 360s have been sold through but how many competitors products have been sold through. Best Buy providing up to date sale through numbers of the 360 to MS is probably easy as pie, getting Best Buy to provide MS realtime data on Wii and PS3 sales is probably a big no-no. NPD gives MS and others the most up to date data of the overall market.
     
    #33 dobwal, Mar 15, 2011
    Last edited by a moderator: Mar 15, 2011
  14. Prophecy2k

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    I'd assume you're likely correct there. But the point still stands that they can't know every 360 sold at retail to unit. More likely that their data is correct to within a given level of accuracy depending exactly on how large of the total retail chain these B&M stores and online outlets make up.
     
  15. Silent_Buddha

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    Well, considering the large retail and e-tail chains have for the most part supplanted smaller brick and mortar locally owned game stores (none exist in my City anymore), I'd say the amount of sales MS potentially couldn't track, at least in the US, is trivially small.

    This is assuming MS has an agreement with the large retailers and etailers for sales information with regards to their products. Same goes for Sony and Nintendo.

    Regards,
    SB
     
  16. swym

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    Prophecy2k already brought up the point that I was trying to make, but let me emphasize some more points:
    1) While in most cases a retailer has no point holding sales number from a supplier (letting your supplier knows when you are about to go out of stock actually benefits you because it helps smoothing out the supply chain), some might want to keep some information to themselves. This can be used as a leverage point when negotiating shelf budget and in store advertising budget (if I know that my console flies off the shelf anyway, why would I bother paying for appearing in your weekly in-store brochure?). This is a minor point, but one to consider nonetheless.

    2) But lets ignore the first point. If a retailer is willing to provide the supplier with all the information they want, there are still security measures to consider. Do I really want Microsoft to have free FULL access to my stock database? If it is not secure, then they can freely pull valuable competitive information from it.
    So this is basically a question of not only creating such a database, but how much money and effort will it cost me to link my supplier with LIMITED access to my database AND at the same time make sure that it is secure and they can't pull out whatever they want.
    On the other hand, what exactly do I have to gain from such a move which will obviously cost me money and time? These are things that every retailer needs to consider

    3) I don't believe that suppliers can manage retailers inventory anymore, especially after retailers realized that shelf space and in store promotions are worth a lot of money. Once retailers started treating shelf space as a source of profit, many of them simply don't let the suppliers dictate what goes where in their store anymore. There might be some exceptions with companies that have near monopoly in their business (like Gillette), but this is something that is gradually fading away and the bigger the retailer is the more power it has against the supplier (there are a very few suppliers that can allow themselves to play a game of chicken with a giant like Walmart for example).

    4) One more point which I didn't bring up previously is that Microsoft is probably getting payed for each unit that is shipped to retailer (unless they have some kind of back-order agreement). When they provide information on units sold/shipped, they do it for their investors who are interested in how much money Microsoft made and that's why it doesn't matter as much if these units reached the customers or not.
    NPD on the other hands is trying to give an indication of the retail business health in the US, and that's where "sold to customers" matters more. But it does give you bragging rights when these numbers show that the actual customer is buying the stuff that you push through the retail chain and you don't just stock up stuff.
    But that's just another point worth bringing up, and doesn't take away from the fact that you can't get real time information from every retailer even if you cared about it.
     
  17. dobwal

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    Why would withholding sales information help with negotiating on shelf space?

    First, I ,as a manufacturer/distributor can relatively tell how fast you are moving consoles by simply tracking shipping numbers. I don't need sales numbers to figure that out. You're hardly going to fool me into buying more advertising, when I know that shipment numbers aren't declining.

    Second, lets look at the dynamics of consoles as a retail product to show how your argument is mostly irrevelant.

    The profit margins on consoles are thin given the amount of profit margin built into each unit, the amount sold and the amount volume space used by each unit. This make consoles unattractive for prime shelf realestate for retailers. Through out most of the year consoles are sold to consumers who come to the retail store with the intention of buying a console. The vast majority aren't sold as impulse purchases. These reasons contribute to why console aren't often sold where supplier pay a premium to place their products.

    There is a reason why retailers allow such a low profit margin on consoles. Consoles act like loss leaders. Most of the profit from a console sale does not come from the console unit itself, it comes from the games and accessories that are bought along with the console. This is why games and accessories get prime realestate in terms of shelving. Why give console prime shelf spacing when you are talking about $300-400 with a $30-$60 profit margin, when you can place 30-40 software units there with a total profit of $300-$600.

    Shelf price negotiation is not very relevant when it comes to console sales. Its unattractive for prime location from both the retailer and the supplier. Hardly a reason to with-hold sales data.


    I don't need broad access or limited access to your inventory database to establish sales in realtime. How hard is it to point a server at another, do a handshake and spit encrypted data over the internet securely. If banks can provide online banking to their consumers without their million of consumers becoming a pertinent risk threat to their overall system, I doubt MS has trouble securely implementing a streamlined supply system.

    Shipped numbers are the most relevant for investors. Sales numbers are the most relevant when it comes operations like the warranty program. If a retailer gave MS no info on the actual sale of a console, then MS could only track the shipment date of the console and would have to rely on the customer on providing a sales reciept to establish a date of sales when the warranty started. They would also need to verify the sale with the retailer if they want an extra layer of protection against warranty fraud. Establishing the sales date from the outset removes all that extra time and effort of the consumer as well as MS. MS already has such a system in place, and given the high level of RROD on the 360, it would have been easily discern that a healthy amount costumers had to use an alternative system.

    Sales data helps establish streamlined protocols thats easy on the consumer, retailer as well as MS. Shipped numbers are more attractive as a PR number because its often bigger. Every 360 shipped to the US doesn't go into US retail, some go to the grey market.
     
  18. swym

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    Your whole argument here merely says that consoles make a smaller margin then the actual games, which doesn't contradict the point itself as I never said that games have different dynamics (in fact it's even harder for the publisher to track these numbers down in real time).
    This doesn't make consoles loss-leader to the retailers, as retailers (unlike console manufacturers) mostly sell consoles at a profit.
    Your argument also conflicts with the facts that consoles are constantly being advertized on in store brochures of almost every retailer, and the same goes for in store advertising/placement.

    Nobody said that it's that hard, but it costs money and effort to the retailer and they have nothing to gain from this. Your bank example is not related - what we have here is actually more like the other way round: me having to give my bank limited access to my home computer and creating the infrastructure myself with no real benefit to me.
    So the point it: it is possible. But the retailer doesn't have a big incentive to do this. It's up to the supplier to give him this incentive.

    Just as I mentioned before: MS (and in this case the customer) is much more interested in this then the retailer. But is MS interested enough to pay each and every retailer to give them this information? It's up to them.

    Also, when it comes to warranty programs I believe that accounting rules (GAAP) force you to be conservative in this case and conclude that each unit shipped is eventually going to be sold to customer who might need to use their warranty. But I'm no accountant so I'm not that familiar with the concept.
     
  19. Silent_Buddha

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    Eh? Why would MS have to pay them? It's just as beneficial to the retailer as it is to MS. Back when I was in Retail (over a decade ago), the large retailers had systems in place to automatically attempt to restock items that were selling well. But that extended only to the Retailers own distribution warehouse. So shortages could and did still happen quite frequently if the company purchaser didn't guage correctly how large demand would be for a product while a competitor who did gauge correctly demand and on-going demand would have a significant advantage with regards to X product.

    By providing sales information or even stock levels (from which you could easily calculate sales numbers) to Microsoft they eliminate the burden on their purchasers for having to manually re-order product when it runs out or preferably before it runs out. If MS knows how many units you sold in the past day/week, and knows the stock levels you wish to keep, they can then more easily restock your company thus giving you a leg up on the competition or if everyone is doing it at least preventing you from being the lone retailer that doesn't get adequate restock.

    In this case, it's actually far more beneficial to the retailer than it is to Microsoft if sales/stock level information is provided to Microsoft.

    Regards,
    SB
     
  20. dobwal

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    Sigh...

    If you want direct proof that your assumptions don't reflect reality. Here...

    mohanchandran.files.wordpress.com/2008/01/wal-mart.pdf

    "In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system. More than 10,000 Walmart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories."

    Infact, Microsoft, Walmart, BestBuy, Target and Sony are members of VICS, the Voluntary Interindustry Commerce Solutions Association and use the CPFR supply chain process.

    http://www.vics.org/docs/committees/cpfr/CPFR_Overview_US-A4.pdf
     
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