Animal Crossing mania & COVID lockdown lead to historic heights in NA & Japan for Nintendo

Supply Chain, Manufacturing problems & uncertainty are keeping forecasts conservative for the Japanese Entertainment Giant.

With the World Wide lockdown creating a huge demand for entertainment, companies with strong gaming divisions like Nintendo, Microsoft, and Sony are all seeing strong sales growth this year for their hardware. Usually, consoles hit around 50% of their unit sales during the final quarter of the calendar year. This is, in no small part due to Black Friday, Cyber Monday, and Christmas, but Nintendo has been quietly setting records in the Spring months this year.

The situation is familiar for Nintendo, as their Wii console launched in 2007, exactly at the time of the prior financial crash. What followed were the strongest years for Nintendo hardware and software, as the Wii reigned supreme. There are similar signs, as we are early into another crisis, as once again video game spending is climbing and Microsoft and Sony are both expected to reveal details around their next-gen consoles in the coming months.

But much like 2007, it's Nintendo that's positioned best, in the current climate, thanks to their hybrid console the Nintendo Switch launched in 2017.

Hardware sales of the Switch and Switch Lite topped the forecast of 19.5 million units, coming in at 21.03 million units for the FY, up 24% from the previous year. But the Japanese Giant provided a very conservative forecast for the upcoming FY due to uncertain global situation. Forecasting a 15% decline in operating profit, a drop in Switch console sales to 19 million for the FY.

Nintendo has been keeping its forecasts conservative after the failure of the Wii U, which managed 13.5 million units, down 87% compared to the Wii which sold in excess of 101 million units. So while

NINTENDO REACHING NEW HEIGHTS IN NORTH AMERICA AND JAPAN

Figures in North America and Japan are certainly pointing towards a very strong start of the FY for Nintendo. According to NPD Executive Director Matt Piscatella, April 2020 was the highest spending during April we've seen on video gaming since NPD started keeping track. North American consumers bough 1.5 billion worth of video game-related products, beating the previous record in April 2008 which was 1.2 billion.

Wedbush Securities Analyst Michael Pachter, disclosed the NPD data, revealing that about 411K PS4 & 329K Xbox One consoles were sold in April, Nintendo Switch topped both with 808K units sold, setting a new record for home console sales in North America during the month of April, following breaking the same record for March. It's estimated that for March and April, the Nintendo Switch sold close over 1.8 million units in North America. Making this the strongest performance by any home console during its first four months of the calendar year in history.

Video game spending is usually concentrated in the holiday months, where giants like Nintendo make around 50% of its software and hardware sales but this year they are setting a record-breaking pace and already have two out of the top 10 top-selling non-holiday months for North America of all time.

The situation is similar in Japan, where the launch of Animal Crossing, lead to the biggest non-holiday or system launch, week in history. Last year Nintendo sold 4.5 million units in Japan and with 30 weeks left Nintendo has already surpassed 2.2 million units in 2020.

ANIMAL CROSSING OPENS NEW HORIZONS FOR THE NINTENDO SWITCH

Demand has been driven by Nintendo's latest blockbuster Animal Crossing New Horizon which greatly expanded interest in the console, as new users flocked to their virtual animal-filled islands in order to escape an uncertain reality. Nintendo shared that New Horizons sold 13.41 million copies in its first six weeks, breezing beyond their lifetime expectations.

Animal Crossing is another sign of the Japanese Giant's masterful ability to generate hits for audiences regardless of age or sex.

Around 40% of Animal Crossing players are female.

The game is lead by Nintendo's first female game director Aya Kyogoku(pictured). She has been with Nintendo since 2003, & is now managing Nintendo’s main development division while directing one of their biggest hits. On the prior entry New Leaf, Aya's team had a fifty-fifty gender split, something not very typical for the gaming industry.

"When I think of inclusionary games, I think of ones that all genders and ages and peoples can play and join. That was certainly my approach with creating the development space and filling it with all different kinds of ideas and experiences through the staff," Kyogoku told Mashable in an interview at 2014's Game Developers Conference.

Animal Crossing New Horizon is dominating Nintendo's home market, as Japan has been taken over by New Horizon mania. The game has already sold beyond 4.4 million physical copies(Nintendo doesn't provide an exact digital breakdown by region), with expectations of becoming one of the Top 3 best selling games of all time in Japan by the end of the year.

It's also a huge driver for the demand of the Nintendo Switch, as it sold 1.1 million units during Animal Crossing first nine weeks on the market. The demand has grown so big that troubled supply chains have struggled to keep up, driving up the price on the second-hand market much beyond its retail price.

Another game driving demand is Ring Fit Adventure, the game has been constantly selling out since launching last year but demand has exploded due to consumers looking for alternative fitness regimes they can do from the comforts of their homes. The main reason the game has been in such short supply is that it has no digital alternative. Ring Fit requires a physical peripheral and Nintendo has been unable to solve both manufacturing and supply chain challenges relating to its production. This has lead to the game being sold out for months.

SUPPLY CHAIN PROBLEMS TO BE RESOLVED END OF Q2

With global supply chains reacting to COVID-19, it's expected that May & June will be quiet months for Nintendo, as they continue to struggle to meet demand. Daniel Ahmad, Sr. Analyst at Niko Partners, expects supply problems to be resolved at the end of Q2:

Currently it's very difficult to find stock of the original Nintendo Switch at its official, $300 retail price across Amazon, Best Buy, and Ebay. The case is the same in Japan & South Korea, where hopefuls take part in lotteries to get the chance of buying a Nintendo Switch or Ring Fit Adventure. Major retailers like Tsutaya, GEO, Yodobashi Camera, etc have been running such lotteries whenever Switch demand exceeds supply for the past three years(a frequent occurrence as Nintendo has had to ramp up production while fighting off competitors for vital components of their hardware and software).

A lot is still unknown about the remaining 2020 line-up, as the largest video gaming event E3 was canceled due to COVID, it's still unclear what to expect for the rest of the year. So far Nintendo has revealed a new Paper Mario and Clubhouse Games titles for the summer. Pokemon Sword & Shield will be getting their first-ever downloadable expansion later in the year and we will likely get a big holiday game announcement before the end of the summer.

Despite an uncertain holiday lineup and on-going supply chain & manufacturing problems - Nintendo is setting the pace in the dedicated videogame market in 2020. As Microsoft and Sony prepare to launch their next-gen consoles. The Japanese Giant is about to face a lot more competition from other giants in the entertainment business like Disney, Netflix, Amazon, and Google, as they are all vying for our time & attention.

Nintendo's approach to providing escapism will be tested once again but as the Wii and now Switch prove, it's not always about the horsepower, voice talent, or polygons. The main goal of all console makers is expanding the market with experiences that captivate demographics not usually associated with video gaming. This is something Nintendo has been doing best for decades. Ring Fit Adventure and Animal Crossing are perfect examples of their strategy succeeding.