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Wal-Mart Pushing Extended Warranties on Electronics

Warranties Return Big Profits but Little Value to Consumers

October 29, 2005

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Wal-Mart is expanding its offering of extended warranties on electronics items, including the computer laptops, large-screen TVs and digital cameras it recently introduced to its stores.

Extended warranties have long been a cash cow for electronics retailers like Circuit City and Best Buy, who earn profit margins of 40% to 80% on them.

Computer retailers and direct marketers like Dell and Gateway have recently begun pushing consumers into buying expensive extended warranties by shortening the standard warranty to as little as 90 days.

The November 2004 issue of Warranty Week reported that Dell's revenue from extended warranty sales was actually overtaking its spending on warranty claims, and Gateway increased its warranty revenue to $33 million while decreasing its warranty costs to $15 million.

But the extended warranties are hardly a best buy for consumers, who usually find the warranties either duplicate the manufacturer's warranty and are thus an unnecessary expense or don't provide extra protection when customers need it. ConsumerAffairs.com has received more than 3,000 consumer complaints about extended warranties in the last year.

In fact, according to the Consumers Union, the reason extended warranties are so profitable is precisely because they're not worth much to the consumer.

"Many of these (products) are established, mature technologies; They usually don't break down," Lauren Hackett, a spokeswoman for Consumer Reports, told The Wall Street Journal. "And if they do, we find that it is generally within the manufacturer's warranty."

Wal-Mart expanded its inventory of higher-priced electronics goods recently, hoping to make up for reduced sales on its lower-priced goods. The falling sales were attributed to lower-income consumers having less spending money because of higher gas prices, health care costs and other factors.

Last week, Wal-Mart began selling two-year product warranties on TVs and computers priced higher than $300 in most of its stores. The warranties cost $28.88 to $98.99, and cover maintenance and repairs after the manufacturers' warranties expire.

Wal-Mart's warranties are being sold in partnership with warranty-provider N.E.W. Customer Service Cos.

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