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Service Plan Providers Foresee A Bountiful Holiday Season And Beyond

NEW YORK – While price points for extended-service contracts have fallen in lockstep with the CE products they cover, they remain an important if not critical profit center for margin-constrained CE and appliance dealers.

The good news, according to insurers, consultants and third-party administrators canvassed by TWICE, is that sales and attachment rates for mobile products will continue to rise this holiday season, and that the recovering economy will release pent-up consumer demand for big-ticket items like white goods — and possibly the new-generation OLED and Ultra High- Definition TVs — in the next quarter and beyond.

Here’s what they had to say:

TWICE: What is your fourth-quarter outlook for CE and appliance sales?

Chuck Stewart, client services and business development senior VP, NEW (a unit of Asurion): Holiday sales are the big question on everyone’s mind. Coming off of the soft back-to-school season, we are expecting retailers to rely on deep discounts to attract shoppers, especially with the condensed shopping season between Thanksgiving and Christmas. As in past years, we are anticipating high demand in strong categories such as TVs, tablets, notebooks, and mobile phones. The new gaming categories for Sony and Microsoft will be a new dynamic this season for a category that has not had much excitement over the last few years. While appliances are not a key category during the holiday season, we generally see a lift pre-Thanksgiving and post-holiday heading into the new year.

Sean Stapleton, president/CEO, Warrantech: Despite recent reports regarding declines in consumer confidence, we are cautiously optimistic about product sales growth in the fourth quarter [and] continue to see the mobile device category outperforming expectations. Further, recent improvements to the housing market have aided appliance sales for many of our partners.

Our belief is that consumers have prolonged many new product purchases due to uncertainty about the economy, and with so much pent-up demand it is just a matter of time before we see a flurry of consumer spending on new products.

Justin Thomas, consumer products senior VP North America, The Warranty Group: Based on recent releases, economic news and slowly improving consumer confidence, we are expecting somewhat favorable results for product sales, but we’re not seeing anything that will take these product categories to a new level within the year. The good news is that consumers appear to consistently be spending more, and while 2013 looks to end relatively flat, the outlook for 2014 and beyond looks to be more promising.

Jim Mostofi, president, AIG Warranty: The outlook for electronics and appliance sales is strong, due to positive trends we’re seeing with the economy. The stock market, housing and consumer confidence are all showing signs of strength, which should help consumer spending into the fourth quarter.

Ty Shay, chief marketing officer, SquareTrade: Across all partners, mobile and tablet sales are very strong.

We expect to see increased demand for the new tablet and smartphone models, as well as the new gaming models and TVs.

Charles Pipia, president, Global Warranty Group: TV and major appliances continues to grow but the category with the largest percentage growth quarter over quarter is wireless — smartphones, tablets and [other] wireless devices.

Sean Hicks, CEO, New Leaf Service Contracts: It appears that customers are feeling better about the economy and opening their wallets to make purchases that have been put off for some time.

The New Leaf client base is largely comprised of independent and regional retailers, and our clients are all optimistic about the fourth quarter. Obviously TV is a really tough category overall but they still expect to see some volume in the new TV products, and appliances in general are strong.

Jennifer Monasterio, president, Mack Worldwide Warranty: We believe we will see the most growth in tablets and mobile devices. Tablets seem to be taking over the computer industry with more people gravitating towards their compact, lightweight design and touch screen capabilities. The tablets are also able to integrate apps and sync with other devices such as phones and TVs.

Stacey Vogler, marketing and product development VP, Assurant Solutions: We believe the outlook for sales of consumer electronics and major appliances for the fourth quarter remains mostly positive, primarily due to rising consumer confidence as the economy continues its recovery. In fact, household spending on CE has increased 36 percent in the past 12 months.

We expect to see this upswing continue for the holiday season and beyond. Demand for the latest tech gadgets will continue to increase with the introduction of new mobile devices, new gaming systems and other new consumer electronics in the second half of the year. A variety of upgrade programs by the major mobile carriers will also make it easier for consumers to adopt and protect the latest technology with extended-service contracts.

We also expect appliance product sales will increase as consumers are starting to replace their aging appliances after postponing these purchases for years.

David Anderson, product director, Protect Your Bubble (a unit of Assurant Solutions): According to an August Gallup report, consumers’ average daily spending has been on the rise throughout 2013. We think this could be a good indicator of a healthy fourth quarter and consumer spending leading into the Christmas season. And the response to Apple’s new lineup of devices may be a good barometer of consumer appetite for new technology in the fourth quarter.

Dawn Morris, general manager, Bankers Warranty Group: We anticipate fourth-quarter sales of electronics and appliances to be higher than in the last several years, in particular for e-commerce. Consumer spending is still on the rise, unemployment continues to drop and there is a rebound in new home building. Electronics products have shown considerable growth, especially in the mobile category, and appliances are strong.

Mike Frosch, principal, Personal Safeguards Group: We are in an environment where the consumer is cautiously optimistic but growth in electronics and appliances will be limited. The attachment rates will remain consistent at store level but as more sales go online we will see potential decreases in overall combined attachment rates.

TWICE: Do you anticipate any change in historic Q4 attachment rates?

Thomas: We believe attachment rates will remain steady for service contracts overall, with a higher rate of success in the accidental damage area for mobile electronics, as well as a higher propensity to buy contracts on advanced technologies as they come into the market.

The category that will continue to maintain strong attachment rates is the mobile electronics category due to the emotional connection and critical role that tablets, smartphones and laptops play in consumers’ day-to-day lives. Accidental damage and more comprehensive coverages that are wrapped around mobile electronics — particularly those that provide a replacement deliverable to the consumer — will continue to be attractive in the market place.

Stapleton: During the recession we witnessed increased attachment rates for extended-service contracts due to a greater focus by retailers. The lesson learned by many retailers during those challenging times was that well-managed extended-service contract programs increase customer satisfaction and retention, in addition to providing revenue. We believe the trend will continue on into the fourth-quarter and beyond.

As mentioned, the mobile device market continues to lead the other categories with regard to growth. During the upcoming holiday season we expect to see further growth of the category due to continued demand by consumers for these devices. Additionally, we are seeing a very interesting growth trend for audio equipment, including high-end headphones, soundbars and portable speakers. Consequently, we anticipate that service-contract sales for the mobile electronics and audio equipment categories will be strong.

Mostofi: We expect attachment rates to be up. Consumers are more conscious of protecting their purchases, particularly in the mobile space where consumers have become so reliant on their mobile devices.

Mobile devices will have the largest growth in the fourth quarter, and we expect service-contract sales for mobile devices to continue to grow. New product offerings in this space and consumer appetite show no signs of slowing. One recent study suggests that mobile devices globally will outnumber people by the end of this year.

Major appliances and HVAC have always been a strong leader for service-contract attachment rates because they are considered “necessities,” and consumers view them as complicated and costly to repair.

Vogler: New technology will continue to drive demand for consumer electronics and appliances, thus also driving the sale of extended-service contracts. Assurant’s consumer research indicates that early adopters of technology are more likely to protect their purchases with a service contract. So as consumers adopt these emerging technologies, we expect they will purchase the service contract as they have done in the past.

Mobile devices will lead the demand for technology as smartphone carriers continue to add less-expensive models to their lineups and offer owners more opportunity to upgrade. Purchase intent is high for smartphone owners looking to upgrade and for consumers upgrading to this technology for the first time.

Purchase intent is also high for tablets, with only 40 percent of the U.S. market owning a tablet currently. Tablet sales are forecast to increase 45 percent in 2013, and many consumers save their purchases until the holiday season and/or the next upgrade period when they buy, both for themselves and as a gift for others. Consumers see the value of protecting these products, especially when they are on the go.

We also expect increases in sales around smart TVs, in addition to Ultra HD and OLED models, as more and more consumers choose to access content over the Internet rather than, or in addition to, accessing it exclusively through their cable or satellite provider.

Pipia: We are expecting tremendous growth in our electronics and appliance division, and our attachment rates continues to climb. GWG spends a considerable amount of time with our retailers, providing online training, onsite trainings and continual market support to increase their attachment rates.

Hicks: We have seen a nice increase in attachment rates and expect to see that continue in the fourth quarter. We have been very fortunate in that the independent/ regional retailers do a very nice job selling service contracts. New Leaf has also put a big focus on training with our dealers to help keep the focus on service contracts high.

Product-wise, appliances have the highest penetration in refrigeration and laundry. These are the products consumers can least afford to be without, thus it drives a higher attachment. We are spending time trying to get dealers to focus on the other appliance products by coaching them to sell package plans and to step off of the five-year [contracts] to achieve a price point for the cheaper appliances.

Electronics is television. The penetration rates have been going down due to the pricing situation. With the introduction of more high-end and higher-priced TVs we are seeing the penetration going up in this area.

Stewart: We predict a similar forecast as we have seen over the past few holiday seasons – solid sales in television, but the big drivers will continue to be in mobility. Tablets will be a growth category for the season and we expect to see some aggressive price points.

We are looking to maximize both our retail partners’ in-store and online environments to make sure they are well-positioned heading into Q4.

Monasterio: Since tablets and mobile devices are easily transportable and used so frequently, consumers will see the value in adding a warranty that will cover much more than manufacturer’s defects.

Frosch: Appliances and televisions will continue to see strong attachment rates during the fourth quarter. Appliances now contain a great deal of advanced technology and both appliances and TVs are products the consumer plans to keep for many years. You may buy a new phone every two years but you want your appliances and TVs to last much longer.

Anderson: There is a growing awareness of the value of service contracts and technical support programs as consumers buy more smartphones, tablets and other smart devices. Consumers want these types of devices protected and supported because they connect them to so many things in their daily lives.

We have seen the most growth and interest in protecting smartphones. Consumers are starting to understand that these devices are worth more than the $200 they paid the carrier when signing a contract. More consumers are buying at full cost, financing devices, and trading in devices which all reinforce the high value of the smartphones. They also know how carelessly they tend to handle their smartphone on a daily basis, similar to their car keys. This all contributes to significant need to protect these devices and consumers are looking for the best coverage and prices to do so.

As an e-commerce company selling protection programs, we are also excited about the growing trend of online shopping and consumers searching for the best deal for their device and protection programs.

Morris: With the economy continuing to improve and customer spending increasing, we see more and more opportunities for retailers to close on extended-service plan sales. Customers increasingly use their devices for more than one purpose, to store important information, and on a more regular basis, which means they rely on these products more than ever and see the value in protecting them.

Shay: Partners who have switched from a private-label provider to the SquareTrade brand have seen significant gains in attach rate. We believe that our popular, transparent consumer brand is having a big impact.

TWICE: Will the new generation of Ultra HD and OLED TVs have an impact on TV sales and attachment rates this holiday season?

Pipia: We definitely think so. Consumers always want the last and greatest technology, and based on the price points, these products are perfect for extended- service contract protection.

Thomas: Whether or not the introduction of the new-generation TVs will impact overall sales and/or attachment rates remains to be seen. One thing we are confident in, however, is that with any new technology that comes into the market, especially as a high-ticket item, consumers are more apt to buy a service contract to protect their investment.

Hicks: I’m not sure about how the new products will impact sales. We have a few independent retailers starting to sell the Ultra HD products but not planning to jump on the OLED yet. These categories do perform extremely well for us as they are new, and clients are “uncertain” of their long-term performance, which makes the sale much easier.

Stewart: Much like the launch of 3D, we don’t anticipate much of an impact coming out of the gate for these new products this year. High retail price points and lack of [native 4K content] will limit the audience. On the flip side, for the products that are sold, we would expect excellent attach rates as customers will look to protect this type of investment.

Monasterio: Yes, if the Ultra HD (4K) TVs will be preferred by the consumer once the equipment becomes more mainstream. It looks to be the next jump in video technology similar to what we saw when equipment went from 720p to 1080p. If the TV remains more expensive than the current 1080p units, we would expect attachment rates to increase since the consumer is making a greater investment.

Also, the technology is still fairly new to the mainstream market, which means that the retailer can assure the customer that they will have additional support by purchasing an extended warranty should any malfunctions occur.

Shay: In general, the higher the price of the TV the higher the attach rate, so Ultra HD bodes well for increased adoption.

Stapleton: The new TV technologies are expected to provide some improvement to sales. However, unless strong marketing campaigns are unveiled by manufacturers and retailers detailing the overall improvements to the consumer’s viewing experience, growth will be limited.

That said, the trend toward higher sales of smart TVs does provide us with good reason to be excited about Ultra HDTV and OLED TV sales in the future.

Frosch: It is very early in the cycle to see significant adoption of UHD or OLED. The better the sales in these items the stronger the attachment rates for extended warranties as new technology generally achieves higher attachment rates.

Anderson: Anytime a new standard is set, consumers will take that step into the latest and greatest. Most consumers were not really up for making that step into 3DTVs, but Ultra HD could have more street cred and can make a larger TV screen have incredible clarity. This could be especially effective in a retailer’s showroom.

The problem is the current price tag. Ultra HD TVs currently selling for around $4,000-plus and OLED models are currently selling for over $6,000. There is certainly a market for those types devices, but at that price tag, it could be really small. Most consumers are now conditioned to the fact that they’ll have these TVs for four to seven years, and the price drops dramatically after the first year new technology enters the marketplace.

Mostofi: Yes, we expect that the higher price points of these “new-generation” products will be an added incentive for consumers to protect their purchases with service contracts.

Mike Kelly, sales VP, Bankers Warranty Group: As a new technology that will require time to accrue compatible content, I foresee minimal impact for this holiday season. However, industry experts are predicting Ultra HD sales to steadily gain in percentage of overall TV sales over the next few years. It will be interesting to watch how this prediction unfolds and how warranty sales attach to the product.