The slump is particularly bad news for specialist retailers such as EB Games, which are already facing pressure on multiple fronts. The problem for retailers is that the weakness is not confined to Nintendo. Both Microsoft’s Xbox and Sony’s PlayStation businesses are showing signs that the current generation of consoles is losing momentum.

Microsoft’s Xbox hardware business has been hit particularly hard. Xbox hardware revenue fell 29% year-on-year in Microsoft’s first quarter of FY2026, followed by declines of 32% in the December quarter and 33% in the March quarter, with Microsoft attributing the falls to lower volumes of consoles sold. Gaming revenue declined 7% in the March quarter, while Xbox content and services revenue also fell 5%.

Sony is facing a similar maturing hardware cycle. The company shipped just 1.6 million PlayStation 5 consoles in the June 2026 quarter, compared with 2.5 million in the same period a year earlier, a fall of 36%. Sony’s PlayStation hardware revenue also declined from ¥153.3 billion to ¥138.3 billion. The figures reinforce the problem facing Australian retailers: consumers are increasingly spending within established gaming ecosystems rather than rushing out to buy new consoles. Sony still had 125 million PlayStation monthly active users at the end of the quarter, demonstrating that weaker console sales do not necessarily mean consumers have stopped gaming.

It’s not just Australia where Nintendo sales are coming under pressure, Nintendo’s Switch 2 sales in the US were less than half what they were the same month a year ago, leading an industrywide hardware decline, according to new Circana research.

The far-reaching impact of elevated memory prices has pushed up the cost of each console and even the debut of several hit new games couldn’t forestall a big drop in console sales, the researchers found.

Game hardware spending in the US fell 29%, to $282 million, which was the lowest tally since the Covid pandemic snarled supply chains and restricted the wide availability of consoles.

Unit shipments fared even worse, as they came down by 39% while prices were 16% higher, reaching a $542 average price, Circana said.

Xbox pursuing handheld gaming console. Artwork: ChannelNews.

In Nintendo’s case, the company is also struggling with rising manufacturing costs as memory pricing and availability put pressure on hardware economics, while questions are being raised about the strength and timing of its new software pipeline.

Nintendo’s core problem is that it is caught between protecting the profitability of Switch 2 and keeping the console affordable enough to sustain mass-market sales.

In Nintendo’s latest quarter, Switch 2 hardware sales fell 34.4% year-on-year, from 5.82 million to 3.82 million units, while Nintendo’s overall revenue declined about 9.5%. Nintendo has nevertheless kept its full-year Switch 2 target at 16.5 million units, a figure some analysts now question whether the company can manufacture and sell.

Rising production costs are squeezing the hardware side of the business. Component costs, particularly memory chips, have been rising, while tariffs and currency movements have added further uncertainty.

Nintendo already launched Switch 2 with relatively thin hardware margins compared with the original Switch, meaning simply absorbing higher costs indefinitely becomes increasingly difficult.

Now the company is moving to raise prices around the world, with Australian price increases expected to be announced shortly.

Insiders claim the recommended Australian price is set to rise from A$699.95 to A$769.95 on September 1.

A higher price would help Nintendo recover more of its costs on each console, but it also makes Switch 2 harder for retailers such as JB Hi-Fi and EB Games to sell to price-sensitive families and casual gamers, particularly now that the initial launch rush has passed.

The broader slowdown at Xbox and PlayStation makes Nintendo’s decision even more significant. Rather than increasing prices into a booming console market, Nintendo risks asking consumers to pay more at precisely the point when demand for dedicated gaming hardware appears to be weakening. Microsoft’s numbers are particularly telling: Xbox hardware revenue was already down 25% in FY2025 and the declines accelerated during FY2026.

For retailers, the concern goes beyond losing the margin on a console sale. Stores such as EB Games rely heavily on hardware purchases generating subsequent sales of games, accessories and other higher-margin products. Fewer consoles moving through stores potentially means fewer opportunities to generate those additional transactions, while the continued migration towards digital downloads puts further pressure on the traditional retail model.

This is particularly important because retailers make considerably better returns from games and accessories than they do from console hardware itself.

Earlier in the Switch 2 cycle, software sales recorded growth and Nintendo’s digital revenue increased sharply, highlighting why Nintendo needs compelling game sales to overcome the increasingly high price barrier surrounding its hardware.

At A$769, consumers are likely to demand a much stronger reason to upgrade from the original Switch. Nintendo therefore needs a steady flow of major exclusive titles—not merely hardware improvements—to convince the huge existing Switch audience that Switch 2 represents sufficient value.

Nintendo Switch 2. Still from promotional video.

The original Switch creates another complication.

Nintendo has an enormous installed user base, with lifetime Switch sales now exceeding 150 million units.

Because those consumers already own a Nintendo machine and many Switch games remain playable on Switch 2, Nintendo has to persuade them that upgrading now is worthwhile rather than waiting for a discount, bundle or must-have game.

Nintendo is not currently facing a profit crisis. The more immediate concern is whether higher prices and rising component costs will further slow Switch 2 adoption and, in turn, hurt Australian retailers dependent on hardware driving consumers into their stores.

The strategic danger is that price rises may solve Nintendo’s margin problem while worsening its volume problem.

Nintendo therefore has to find the price at which Switch 2 remains profitable without losing the broad family and casual gaming audience that made the original Switch such an extraordinary success. For Australian retailers already dealing with weakening Xbox and PlayStation hardware sales, Nintendo getting that balance wrong could make an already difficult console market considerably worse.