Extended-Warranty Providers See Fourth-Quarter Rebound - Twice

Extended-Warranty Providers See Fourth-Quarter Rebound

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NEW YORK

— Despite an unusually soft summer — or perhaps because of it — extended-service-plan providers are forecasting a solid holiday selling season fueled by new technologies, aggressive pricing and pent-up demand.

Leading the CE holiday hit parade will be a new slew of slate PCs, smartphones, e-book readers and IPTVs, executives said, although for many the verdict is still out on 3D TV.

Bruce Saulnier, president of AMT Warranty and Warrantech, believes the introduction of new CE technologies like 3D TVs and tablet computers bodes well for product sales, while the lack of repair histories for new categories, and dramatically shorter manufacturers’ warranties, provide ripe opportunities for sales of extended-warranty plans.

That said, Sean Hicks, who heads Warrantech’s consumer product services unit, is “not expecting a robust year in terms of overall retail sales” due to the toll the economy is taking on consumers. Hot CE categories like 3D TV will be the exception, but within white goods, he believes the federal stimulus program “worked so well that it pulled much of consumers’ pent-up demand for appliances out of the market.”

Keith Meier, senior VP of extended protection solutions for Assurant Solutions, anticipates a “reasonably solid” holiday season, although consumer spending will continue to be driven by aggressive and extended promotions that will pressure industry margins. Top sellers will likely include e-book readers, tablet computers, handheld gaming devices, smartphones and IPTV, while 3D TV, despite falling prices, doesn’t appear “quite ready for prime time,” he said.

Kevin Rupkey, president/CEO of Bankers Warranty Group (BWG), believes CE sales will rebound somewhat following the soft summer and will outpace other consumer product categories. Bundled promotions will likely continue to help drive volume, and BWG has developed bundle-specific service plans targeting 3D glasses, Blu-ray players and 3D TV packages. Motion-sensing gaming will also help spur holiday business, he said, although the jury is still out on whether 3D TV will be a hit or mere novelty.

Paul Zucker, marketing VP at Global Warranty Group, said low prices for flatscreen TVs, PCs, GPS devices, smartphones, and new technology products like e-book tablets and 3D TV will induce consumers to “spend at increased levels” during the holiday season.

Joe Romano, senior VP for client services and business development at NEW, is “cautiously optimistic” about the upcoming holiday selling season and end-of-year results for the retail industry as a whole, and CE in particular. “As consumer electronics play an increasingly important role in consumers’ daily lives, products are moving from discretionary purchases to necessary ones, which bodes well for holiday sales,” he said.

Leading the charge will be tablet computers, e-book readers, smartphones, Web-connected TVs and other Web-enabled devices, as well as midsized flatpanel TVs, while majaps will continue to show strength as consumers upgrade their existing homes in lieu of purchasing a new one, Romano projected.

Steve Abernethy, president/ CEO of SquareTrade, said that even though consumers are gun-shy about making big purchases and taking on more debt, they will likely come back in a big way in Q4 following two years of reduced spending. What will they be buying?

“We expect smartphones and e-readers to be the hottest consumer electronics products,” he predicted, but less so for 3D TV. “The price premium, the weak economy and the change in consumer behavior required means 3D is still a few years from being a must-have holiday item,” he said.

Christopher Smith, president of Service Net Warranty, anticipates slight gains in CE and majap unit volume this holiday season on potentially lower revenue, as LCD TV and laptop computers continue to decline. His top pick for the season: e-book readers. “Unit sales are off the charts, and as the product hits $99, more sales will come,” he observed. He added that 3D TV will likely generate “moderate sales, but its popularity will be subject to programming.”

Michael Frosch, president of The Warranty Group’s North America consumer products division, believes aggressively priced LED and 3D TVs, as well as sub-$200 netbooks, will bring consumers back to stores and e-commerce sites this holiday season. What’s more, concomitantly lower prices on extended-services plans, and the rollout of new, untested CE technologies, should help support attachment rates come Christmas.

“The lower prices for plans means they can reach more consumers who many not have opted for them before,” Frosch said.

Service Net’s Smith said attachment rates are up over last year, driven by the economy and the introduction of new technology. “Consumers want to guard against unexpected repairs and those who finance their purchases are going to add the extra coverage. There is a lot of new technology on the market, and consumers tend to buy service contracts on technology on which they do not have experience,” he observed.

Square Trade’s Abernethy believes consumers will seek value in extended- service contracts as well as CE hardware. “With rapidly decreasing electronic prices, service contracts will need to keep providing value here. Consumers are also now more often researching warranty programs before they buy, so retailers will increase attach rates by demonstrating strong consumer ratings within their merchandising, just like they do with their best selling CE items.”

NEW’s Romano expects the “connectivity and complexity” of the latest crop of CE devices to continue driving attachment rates, which last year rose 10 percent over 2008.

BWG’s Rupkey is similarly anticipating “strong” attachment rates as retailers continue to place heavy focus on the plans. “We encourage retailers to engage in “value added selling” to provide consumers with a complete solution by attaching service plans and accessories to each and every sale,” said.

Assurant’s Meier also expects extended- service contracts to perform “similar to or slightly better than last year as retailers focus on including them as part of their bundle. We’re also creating new test programs like monthly pay and deductibles, driving attachment for lower-priced items to help compensate for price compression.”

AMT’s Saulnier also sees attachment rates rising as “consumers are receptive to the idea of avoiding expensive repair bills,” he said.

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