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March 10, 2008 - Warranties

I was watching television the other day, something I rarely do, and I saw one of my favorite movies of all time: Tommy Boy staring Chris Farley.  Watching my favorite scene I was reminded of my role in the fitness industry, and no I’m not talking about “Fat man in a little coat!” nor am I talking about which Little Rascal I like the best: Alfalfa or Spanky! 

No the scene that I am referring to is the one where Tommy Boy, acting as a ubiquitous salesman, attempts to help the owner of an auto parts distributor to understand the true nature of product warranties.  To paraphrase, the owner of the distributorship doesn’t want to buy Tommy Boy’s auto parts because the competition’s part has a guarantee stamped on the box.  Tommy Boy’s retort is the stuff of legend.  “If you want a guarantee, that’s OK but we both know that a guarantee is only as good as the company behind it.  I can take a dump in a box and slap a guarantee on it, but we both know that all you have is a guaranteed piece of sh-t!”  Truer words have never been spoken, especially when looking at the fitness industry.

I get questions all of the time asking about the differences between elliptical brands, models, and which one the consumer should purchase over another.  Because many of these units are in similar price points and have similar features, many times consumers are telling us they are deciding on the basis of the warranty.  They are encouraged in this line of thinking by the many pseudo-experts on the Internet and in retail stores that propagate the story line that the longer the warranty the better the equipment.  The line they tell is that if the company is willing to put a longer warranty on the item then it must be a better piece of equipment.  It sounds good too, until you start to look a little closer at the logic of the fitness industry.

Warranties in the fitness industry used to be fairly reasonable.  You would get a two or three year home parts warranty along with a one year labor warranty.  This would satisfy most people fairly well.  Two factors, however, started to contribute to the explosion of warranties in the fitness industry; individual usage rates, and competition. 

Manufacturers figured out that on home fitness equipment, approximately 8% to 12% of the people that bought the equipment actually used it consistently after three months.  So even if they had a catastrophic failure rate of 10%, that would mean that the company’s overall failure rate would still be less than 1%.  It was at this point that some bright marketing person decided to start to issue longer and longer warranties as a selling feature to the consumer.  It made sense then and it makes sense now.  The problem and benefit to the consumer however is the warranty competition that has resulted from this phenomena. 

Fitness equipment manufacturers have now created a situation where a $4,000 Precor treadmill has a ten year parts warranty and a Proform sold for nearly 80% less has a ten year motor warranty.  This benefits the consumer.  But it also casts a shinning light on the lie that the warranty is correlated to the quality of the machine.  Manufacturers can produce substandard products and be fairly certain that their losses are limited due to the low usage rates of their products.  The other problem with this competition is that while a large company like Icon, Lifefitness, True Fitness, or Precor can make this long range financial commitment with a reasonable degree of fulfilling their promises, other smaller fitness manufacturers and start-ups are forced to issue similar warranties like the big boys.  This is where the consumer can lose big.  In a highly competitive fitness industry where the big boys are struggling to prosper in a general economic recession, how long will the small manufacturers be around to honor their long range commitments?  Just ask the customers of the former Lamar Fitness.  This situation sounds like the proverbial sh-t in the box to me.