Retailers groan as Microsoft extends XBox 360 warranty to one year

Yesterday, I had a great conversation with a Dow Jones reporter about the role of extended warranties in the profit and loss in selling flat panel TVs. I noted in my article about the challenges of flat-panel retailing that add-ons are the only things really keeping flat-panel sales profitable. And that story applies to all consumer electronics nowadays; extended warranties allow retailers to boost their gross margins from single digits to something that can actually drive bottom line profit.

That's why a lot of retailers are probably cursing the gods of Redmond today, because after a full year of XBox 360 sales,
Microsoft finally extended its XBox 360 warranty from 90 days to one year in the US and Canada.. Undoubtedly, this was the result of Sony entering the market with its Playstation 3, which carries a one-year Sony warranty. But the unintended impact on retailers will be to reduce the number of consumers who buy extended warranties for XBox 360s. And that means that Microsoft just reduced the net profitability of XBox 360 sales to the very companies that it wants to sell them. How clever.

It will probably take a few months before the business analysts at Best Buy and Circuit City notice this effect. But given what I consider to be a likely effort by the company to stuff its retail channel with unsold XBox 360 boxes to make its sales goals this holiday season, this move is likely to just add another annoyance to an already testy relationship with retailers.

Technorati Tags: Best Buy, Circuit City, Playstation 3, Sony, Warranties, XBox 360