Circuit City Sells $400 Million in Service Pacts

Richmond, Va.-based Circuit City Stores Inc. sold more than $400 million of extended service contracts in fiscal 1997. But consumer groups maintain that the contracts that generated 6% of the company’s earnings aren’t a good buy. “If something’s going to go wrong, it’ll probably happen right away and be covered by the factory warranty,” said David Helm, managing editor of Consumer Reports magazine. Some warranties are more expensive than the products themselves. A five-year service contract for one of Circuit City’s $89.99 microwave ovens would cost a consumer $109.99. Retailers sell the contracts because “most consumer electronics companies make most of their profits from extended warranty contracts,” said analyst David Childe of Morgan Keegan Inc., a Memphis, Tenn.-based securities firm.