Calling time on extended warranties
Electrical retailers will struggle to sell and profit from extended warranty insurance over the next few years as the market continues to shrink, finds Datamonitor.
Research from the independent market analyst reveals that with weak electrical sales last year and predicted for this year, the drop in sales of extended warranty insurance will be a big hit to already under pressure retailers particularly as many make considerable profit margins from this line of business.
Robert Mattai, analyst at Datamonitor said: “Consumers just aren’t buying the more expensive electrical items as often anymore; they’re spending less and products are lasting longer negating the need for extended insurance.”
When consumers do buy big ticket items, such as washing machines and TVs, they’re shopping around far more aggressively than they did before the recession and there has been a shift towards supermarkets and online. In fact the online electrical retail market has grown from 6.8% of all purchases in 2004 to 23.8% by 2009.
Mr Mattai continued: “The growth of electrical sales online makes it far harder for retailers to sell extended warranty insurance because of the passive nature of the sell. Although many retailers do offer the insurance on their websites, it is far more difficult to up-sell online than it would be for a shop floor assistant in person.”
Independent online providers can offer more competitive deals for those that do want to take out extended warranty insurance. Credit card companies are also offering the insurance which is further impacting on store sales.
Mattai added: “However, with the 3D TV promising to take off over the next few years and a return to growth in the housing market leading to more sales in white goods, it could mean a more positive future for the electricals extended warranty market from 2012 onwards.”
