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Warranty Providers Weather Holiday Doldrums

Despite the worst holiday selling season in a generation, extended service providers (ESPs) made it through the fourth quarter of 2002 largely unscathed.

In the process, sales of their warranty products helped buoy consumer electronics retailers during the holiday doldrums, and, once the bookkeeping is done, will have likely done much to bolster their bottom lines as well.

Ironically, the very consumer fears and concerns that kept holiday traffic at a crawl also contributed to higher contract attachment rates, industry executives reported. “It’s a bit of an inverse relationship,” said Frank Ferrara, VP/ESP development for the Assurant Group. “In this environment, people run to safety. They’ll keep their computer for four years instead of three. Plus there are the new technologies, like plasma displays. That’s not something you can get your Uncle Sal to fix.”

A spokesman for VAC Service Corp. concurred. “Given the uncertainty consumers are feeling, they are buying more carefully and are more desirous of protecting their budgets by purchasing service plans. Hence, peace of mind when it comes to worries over a budget-busting repair down the line.”

What’s more, thanks to the emphasis that high-service retailers place on promoting service plans, sales associates were able to turn the slower traffic to their advantage. “We had a very good quarter and record close rates for December because sales associates were able to maximize footsteps,” said Tony Nader, president/COO of N.E.W. Customer Service Companies (NEW).

Matt Frankel, VP at AIG Warranty— which recently shared a Best Buy Bravo! Award with NEW for their joint venture, AIG Warranty Guard — expounded on the point. Despite the soft retail environment, he said, “Attachment rates held up pretty well because there was more time for associates on the floor to spend with each customer. That provided more opportunities to sell services and accessories.”

AIG also weathered the holidays well because of its affiliation with Best Buy, which had one of the strongest December showings among the publicly traded CE specialty chains. “Best Buy is our largest account,” Frankel said. “They did well and so did we.”

ESPs further negotiated the rough retail waters by adding new accounts or diversifying their businesses. Warrantech, which anticipates earnings of between five and seven cents per share for the fiscal quarter ended Dec. 31, recently added Vtech and Desears Appliance to its client roster.

A broader portfolio has also been a boon to Warranty Corporation of America (WaCA). Through its recent acquisitions of Here2fix, Satisfusion and Benchmark Technical Services, the company has become a “one-stop shop” for warranty, installation, maintenance and after-market services, encompassing b-to-b as well as b-to-c clients, said Evan Press, VP/sales and marketing for WaCA/Here2fix.

“We’re developing an extensive suite of services that is making us a world class service organization and more than a retail extended service contract company,” explained Press.

Diversification has also helped Service Net hit the $100 million revenue mark after only six years in business. The company presently provides warranty and service-contract management and administration for manufacturers like Maytag, retailers like Office Depot and direct marketers including Yahoo! Shopping, MicronPC, MicroWarehouse, CDW, PC Connection and PC Mall.

“We really feel good about the progress the company’s made in a short amount of time,” said CEO Lansdon Robbins.

Also extending their reach is NEW through its pilot CE program with eBay (see TWICE, Nov. 11, 2002, p. 1); VAC through its alliance with and recent expansion into Canada; and Assurant with its plans to open a new operations center in Kingston, Ontario, Canada early this summer.

Looking ahead, most ESP execs and their retail clients are bullish about 2003. “We feel pretty strong about the next 12 months,” said Paul Swenson, a 10-year veteran of Circuit City who joined Aon Warranty Group as VP last fall, and more recently was named president of Aon Innovative Solutions.

“We met with our clients at CES and everyone is feeling very positive,” Swenson continued. “They expect it will be slow during the first half, but will pick up during the second half. War is the wild card, but even that could have a big impact on sales of big screen TVs.”