Time to stop the warranty abuse

The Office of Fair Trading is running out of patience, and as a result electrical retailers are running out of time.

The retailers are continuing to flout an OFT demand for greater transparency in the sale of electrical warranties – a 400m market – and are even failing to meet the requirements of their own code, drawn up 14 months ago by the British Retail Consortium and signed by all major players.

The reason for the sloth-like leap toward greater transparency and a clean-up of the market is not hard to fathom. An estimated 30 per cent of all the major retailers’ profits now come from the sale of warranties.

For Dixons, on profits of 135.2m last year, that adds up to a tidy 40m per year. Margins on electrical goods have been screwed down by manufacturers but add on a retailer’s two- or three-year extended warranty or coverplan and the profit moves above 30 per cent.

The OFT first investigated the issue in December 1994 because of consumer concerns over the price of the warranties, the lack of information about what was on offer and the high-pressure selling techniques employed. The retailers responded by producing the BRC’s self-regulatory code in May 1995 to ward off enforced price regulation. But it is not in the interests of the retailers to reform themsleves.

A fresh investigation by Marketing Week has discovered that retailers are continuing to ignore the OFT’s demand for greater transparency and indeed their own code.

The code clearly states: “Retailers will, where practicable, through the use of display signage, draw attention to their range of extended warranties, including manufacturers sold by the retailer.” The OFT believes that the term “sold” includes manufacturers warranties tucked away in the packaging when you buy an electrical product.

None of the stores visited met this requirement; neither did they provide a copy of the BRC code on demand – another condition it sets itself. Sales staff were not aware of the code or their obligations under it. One assistant at Comet told Marketing Week that brown goods manufacturers do not provide warranties – that is not true.

The retailers are also being squeezed by new entrants to the market – attracted by the potential profits. Next month Barclays Bank will launch a scheme to provide electrical goods insurance, Norwich Union Direct is already there.

The retailers claim that they are meeting their obligations under the BRC code. But our investigation shows that is not true. Retailers have continued to indulge in practices that have mislead and confused consumers.

An OFT review of the code will report at the end of summer. It has no option but to advise to the Department of Trade & Industry that the BRC code has failed to clean-up the warranty market and that it should be forcibly reformed. That will be a painful experience for the electrical retailers and not least their bottom lines.

Cover Story, page 32, news page

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