Warranty Sales Gain Steam With Retail Recovery

New York— For retailers, extended service contracts are an all-weather friend.

When times are tough, as they had been during the first half of the year, these value-added programs can make all the difference between profit and loss, as slower traffic affords increased face time between sales staff and customers, leading to higher tickets and attachment rates.

Conversely, as retailers began seeing signs of recovery in advance of the fourth quarter, greater sales volume brought an increase in contracts, bolstering the top and bottom lines.

For the following two-part examination of the state of the extended warranty business, TWICE has assembled a virtual roundtable of the leading extended service providers (ESPs). We begin with a quick check of the industry pulse, followed next issue by a look at the impact on attachment rates of salaried vs. commissioned sales forces and current product and pricing trends. — Alan Wolf

TWICE: How's business?

Danny Hourigan, president, NEW Service Plan Division: Overall, NEW's business is good. We are fortunate to have a diverse portfolio of clients that understand the value that extended service plans deliver to their customers, and who support these plans across their organization.

Although many of our consumer electronics clients had forecast only moderate growth for this year, their sales leading into the holiday season are stronger than expected, which is helping to fuel sales of service plans. These sales gains are driven in large part by new technologies, such as digital imaging products, along with plasma and LCD televisions.

Additionally, the strengthening economy has encouraged many consumers to continue shopping and buying products that will enhance their leisure activities.

Glen Hammer, chairman, Warranty Corporation of America (WaCA): Business is excellent and continues to grow. When the economy is booming, there are so many customers available that retailers can get lax in discussing value-added products. But when the economy is slow, and store traffic declines, salespeople can spend more time with each customer. This keeps the flow of contracts fairly steady.

Also, retail is only a small segment of our business. A large expanse of our business is with the OEM, providing customer service and support for manufacturer warranties. We also operate SatisFusion, which provides fulfillment for aftermarket parts and accessories, Here2fix, which addresses the e-commerce and catalog aspects of the business, and we have our own insurance company, which allows for unique insurance programs.

Kevin Ruppelt, general manager/warranty management, GE Consumer Products: We've seen an acceleration in service contract sales recently as consumers are increasing their spending in the retail sector. Customers are finding long-term stability with GE and the power of the GE brand. The ability to have access to the resources of one of the top companies in the world is a big advantage in our industry, and is a major part of our success.

Matt Frankel, VP, AIG Warranty: Business is not as strong as we'd like it to be. Retail sales have not been strong during the last six months, and customers haven't been buying as much as we'd like. But the good news is that those who are shopping are buying better products and extended service contracts, so the average ticket is up along with attachment rates.

That's because people want to protect their investment in a $4,000 plasma TV, and because salespeople can spend more time on the floor with individual customers when traffic is slow.

Paul Swenson, president, AON Innovative Solutions: Our business is very good this year. Each of our partners face different challenges, and our job is to work closely with them, understand all aspects of their business, consult, and generate innovative solutions that drive customer and shareholder value.

While the economy has varying impacts on product sales of our partners, creative marketing, training and service solutions have kept extended service plan sales and margins strong. We work hard to develop open relationships that will endure for years.

Jim Tucker, president, VAC Service Corp.: Business is very good. When the economy is soft, people are concerned about keeping their purchases for a long time. [Editors' Note: VAC sales were up 45 percent in the first quarter of 2003 and ahead 63 percent during the second quarter.]

Frank Ferrara, VP/marketing, extended service contract development, Assurant Group Consumer Services: Business is strong as we continue to create efficiencies by consolidating our wholly-owned subsidiary Federal Warranty into our Atlanta office. We're also partnering with our clients to execute the "technology convergence" most of them are involved in, while retail execution of extended service plans is gaining strength on the back of high-end and digital technology.

See the next issue of TWICE for more on trends impacting attachment rates.