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Extended-Warranty Providers See Fourth-Quarter Rebound


— 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
“worked so well
that it pulled
much of consumers’
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,
CEO of
said that even
though consumers
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.