Electrical retailers braced for ruling on extended warranties

The Government is expected to unveil its long-overdue verdict on the sale of extended warranties today after an inquiry that has hung over Dixons and Kesa Electricals for 18 months.

Market sources expect the inquiry into the £800m-a-year market to be more favourable to electrical retailers than originally feared. At one point, it looked like the Competition Commission might recommend barring retailers from selling extended warranties on goods on the day the customer buys the product. But the recent travails of the country's third-biggest electricals chain, Powerhouse, which collapsed into administration during the inquiry, are thought to have persuaded the watchdog to be more lenient.

The findings, which were expected last week, are crucial to the industry because extended warranties make up a large proportion of profits for companies such as Kesa's Comet and Dixons' Currys. Retailers sell the controversial products ­ essentially insurance policies ­ at a higher margin than traditional electrical products. One retail analyst said the "clever money" was on some of the less severe remedies being implemented, such as merely forcing the retailer to disclose more information to customers. "This will mean some additional costs being borne by retailers," the analyst said, adding: "But once the air has been cleared at least staff can actually get on with selling them [extended warranties]."

The negative publicity generated by the inquiry, which initially claimed Dixons had a scale monopoly, has caused sales of the products to plummet by more than 20 per cent year on year. As a total percentage of turnover, analysts estimate that extended warranties comprise just 7 per cent compared with more than 15 per cent before the inquiry ­ the third since 1994 ­ began. They are thought to contribute about 40 per cent of Dixons' profits and as much as 80 per cent of the profits at Comet.

Critics say extended warranties are expensive and pointless as their cover is often included in the manufacturer's warranty.