Extended Warranty Sales on the Decline in Retail Stores

September 18th, 2007 • Related • Filed Under • by admin

Consumer advocates have been arguing for several years now that extended warranties are almost never a idea as a form of insurance, and now it appears that consumers are finally starting to listen and follow this advice. The Minneapolis Star Tribune recently reported that sales of extended warranties at Best Buy are down 12% and sales of extended warranties at Circuit City are down 8%. Consumers are finally starting to feel empowered and are learning to say no to add-on products and up-sales they simply do not need.

Employees of major electronics retailers are almost always required to hit certain benchmarks in selling extended warranties and add-on products. This forces them to use hard-sell techniques and be really pushy and as persuasive as can be in order to get you out the door with an extended warranty, otherwise they could potentially lose their jobs.

Extended warranties almost never work out to be financially beneficial for the consumer. When you buy an extended warranty, you are not only paying the cost of insuring the product, but also all of the fees that it took to market the program, all of the profit that the company makes and all of the commissions that go to the salespersons and their managers. In the end you’ll only get about 15 cents back for every dollar that you put toward an extended warranty.

Extended warranties are some of the most profitable items sold in major retail stores today. Many have stated that the only way Circuit City stays in business is through their extended warranty plans. More than half of Best Buy’s 1.38 billion in profits came from extended warranty sales. The only people making money off extended warranty are the companies selling them and the commissioned sales person pitching them.

A good alternative to getting extended warranties is putting the amount of money that you would put towards an extended warranty in a savings account whenever you buy a new gadget or appliance. If the device were to break, you could then use the money inside the savings account to replace whatever gadget or appliance broke. This way the money’s yours if never have to replace anything and there’s still money available in the event that your regular warranty expires.

With an extended warranty, you almost never come out ahead when buying one. Next time you’re out in a major retailer buying something and are pitched an extended warranty, just say no.