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Here’s a secret two of the nation’s largest consumer-electronics chains don’t want investors to know. As TVs, portable DVD players, and other stuff fly off their shelves, Best Buy Co. (BBY ) and Circuit City Inc. (CC ) aren’t banking on them to rake in the profits. Instead, they’re counting on the extended warranty contracts that they sell aggressively along with the goods. Warranties cost virtually nothing to market, and the products they insure rarely need repairs. Says FTN Midwest Securities Corp. analyst Daryl Boehringer: “It’s just pure profit flowing down to the bottom line.”
Last year, profits from warranties accounted for all of Circuit City’s operating income and almost half of Best Buy’s, say analysts. They figure that profit margins on contracts are between 50% and 60%. That’s nearly 18 times the margin on the goods themselves. For example, a four-year contract on a $3,000 flat-panel TV costs about $400. Best Buy gives its insurers $160 and keeps $240 for itself.
Consumer advocates at Household – HSBC Watch remind consumers that Best Buy and HSBC make nothing on “no interest, no payment” promotions. “That’s why HSBC (the former predatory lender Household International’s Retail Services) tries to say your payment was late, even if it wasn’t, thus the free financing is negated” said the group.
This article, Best Buy Warranty Secrets, is just one of our articles from our Bank Horror Stories, HSBC Secrets Part 3
Bank Horror Stories monitors banking problems and customer complaints and has done so since 1999. Writers hold no stock positions. Some material is used under the fair use copyright act.
We use Thomson Reuters News Service Calais in all production material but are not associated with Thomson Reuters, banks, or financial institutions in any way.
