Store groups escape ban on warranties

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The Independent Online

Britain's leading electrical retailers breathed a collective sigh of relief yesterday after the regulatory authorities ruled out draconian curbs on the sale of extended warranties on household appliances.

The Competition Commission said it had decided not to proceed with extreme remedies such as an outright ban on the sale of extended warranties, which are estimated to account for anywhere between 80 and 160 per cent of some retailers' UK profits.

The Commission's statement of potential remedies also ruled out the idea of forcing retailers to sell warranties in separate areas of the store, imposing price controls on the warranties and requiring manufacturers to provide detailed model-by-model information about the reliability of appliances.

Instead, the Commission outlined a number of less harsh remedies such as longer "cooling off" periods for cancelling warranty agreements, provision of more in-store information about the price and choice of warranties on the market and curbs on the commission sales staff can earn selling warranties.

The Commission also ruled that Dixons, the market leader, did not have a "scale monopoly" although it said there was a "complex monopoly in operation and named 23 retailers including Argos, Carphone Warehouse, Comet, John Lewis, Littlewoods, MFI, Powerhouse and Phones 4u.

One large electrical retailer said: "Overall, we are pretty pleased with the Commission's statement. It has come up with some sensible solutions even though a lot of them, whilst not impossible, may be impractical to implement."

Extended warranties typically involve tying a customer in to expensive insurance policies on dishwashers, hi-fis, computers and the like for three to five years.

The share price of Dixons, which also owns Currys, PC World and The Link, fell sharply last July after the Commission announced it was undertaking an inquiry into the whole area of extended warranties. Yesterday Dixons shares rallied before falling back to close 0.75p lower.

A spokeswoman said: "We need to look at the Commission's proposals carefully. When we have done that we look forward to talking to them again."

Privately, however, the group is thought to be relieved that some of the more onerous remedies canvassed early on in the Commission's inquiry have been dropped because they are unworkable, ineffective or disproportionate.

The Commission said it had not yet decided whether the complex monopoly identified acted against the public interest but said the conduct of the retailers concerned limited choice and competition and this could lead to higher prices for warranties.

Outlining its possible remedies, the Commission said: "The aim should be to encourage competition and empower consumers to get good value."

The Commission's statement coincided with a boardroom shake-up at Dixons which will see the departure of one executive director, the demotion of another and the appointment of two new non-executives. David Hamid, one of Dixons' two joint chief operating officers, is leaving after 17 years whilst the other, David Gilbert, has been asked to step down into a non-boardroom role.