Video: Amid turmoil, layaway makes a comeback

By M. Alex Johnson Reporter
msnbc.com
updated 11/10/2008 7:07:00 AM ET 2008-11-10T12:07:00

Hot Shoppes. Green Stamps. Rexall. Layaway.
Ask your grandparents.
Wait a minute ... did we say layaway?

Scratch that — of all the relics of 1950s retailing genius, it’s the one that’s still around. And with Christmas approaching in a time of widespread economic distress, it’s coming back strong.

“For a lot of people, they’re not going to have credit and they don’t have a lot of money right now, but they want to have a good Christmas,” said Mary Bullock, manager of a Kmart store in Orlando, Fla. “It is a lot different than in years past.”

Until recently, Kmart Corp. was pretty much the only major retailer that bothered to keep layaway plans prominent among their customer services. The service — in which a customer pays off the purchase price of a product in installments plus a small fee before taking it home — appeared headed for obsolescence two years ago when Wal-Mart Stores Inc. shut down its program.

But this Christmas season, other national retailers have joined Kmart in advertising their layaway options, among them TJ Maxx Corp., Goody’s Family Clothing Inc., Marshalls Inc. and Burlington Coat Factory Direct Corp., along with numerous regional chains and local stores.

The revival of layaway is too recent to allow for any broad statistical assessment of its popularity, but Burlington Coat Factory said its layaway sales made up 5.3 percent of its business in August, a 15 percent increase over the same month last year, and were continuing to rise. And other retailers offer plenty of anecdotal evidence.

“It’s been really busy back there” in the layaway department, said Jennifer Hammonds, assistant manager of a Kmart in Jacksonville, Fla. “Sales have increased dramatically over the last couple weeks, and we expect more.”

Harvey Reckard, manager of a Kmart in Eau Claire, Wis., said: “I can tell you that our numbers have increased substantially. People are worried about the economy, and they’re just being very careful about what they spend.”

Kmart banking on layaway
Layaway foundered because it denies shoppers the thrill of instant gratification — the retailer holds on to your purchase until you’ve paid it off.

In good times, shoppers use their credit cards, said Bob Robicheaux, chairman of the Department of Marketing and Industrial Distribution at the University of Alabama-Birmingham.

But these days, “people are shying away from credit cards, because maybe their limits have been reduced or they simply don’t want to carry any debt ahead of an economic recession,” Robicheaux said. “And if a purchase can’t be put on credit because it’s restricted, then the best option is to use layaway ... in the weeks before the holidays.”

No company is banking on layaway more strongly than Kmart, which has made its program a centerpiece of its Christmas advertising. The company has fine-tuned its program for the holidays, extending payment periods up to eight weeks, instead of the standard 30 days.

Kmart charges a flat $5 service fee, so a $300 pool table would cost you $305. You put 10 percent down and then have up to two months to pay the rest in installments. There’s also a $10 cancellation fee, which you get back when you pay off the purchase.

Most attractive of all: There’s no interest — “it’s a small $5 fee, and heaven knows that your credit cards are more than $5,” said Maria Brown, who was doing her Christmas shopping at a Kmart in Louisville, Ky.

Strong incentive for retailers
Scott Krugman, vice president of the National Retail Federation, predicted that layaway plans would continue to grow as retailers scrambled for increasingly scarce customers.

The Commerce Department reported last week that consumer spending recorded its sharpest drop in 28 years in the third quarter, while the BDO Seidman Retail Compass Survey forecast that Christmas sales would decline for the first time in a decade.

“It’s a tough economy,” Krugman said. “Retailers know that, and they know they’re going to have be more aggressive than ever.”

Wal-Mart, the nation’s largest retailer, said it had no plans to revive its layaway program, saying it was too expensive. But consumers said they wished the company would reverse course.

Rochelle Back was in the layaway line at the Kmart run by by Reckard in Eau Claire. She said she was shopping there because “we used the Wal-Mart layaway a lot of times” but no longer had that option.

“You can pay a little at a time and get what you need,” she said. “It works great.”

At a Kmart in Rochester, N.Y., Willie Brown offered this advice: “With the economy the way it is now, more stores should follow that lead.”

For smaller retailers, especially local merchants, consumers can turn to the Web, where eLayaway.com coordinates layaway purchases for more than 1,000 local retailers across the country.

ELayaway, however, charges a fee of 1.9 percent of the sale price — that’s better than interest on a credit card, but if your purchase is more expensive than about $265, it’s more than the $5 Kmart charges. And eLayaway’s only payment option is direct debit from your bank account; if your bank balance can’t cover a scheduled payment, the purchase is canceled and you’re hit with a $25 fee.

Aware of the perception, eLayaway recently began offering the option of paying a flat $8.95 instead of the 1.9 percent service charge, automatically filing a report with Fair Isaac Corp. every time a payment is made on schedule, so customers with poor credit can rebuild their credit ratings.

ELayaway said traffic to its Web site had nearly doubled in the past year, another sign of renewed interest in layaway plans.

“Companies with layaway programs are essentially offering their customers free credit, and many consumers are likely to take advantage of that in these economic times,” said Robicheaux, of the University of Alabama-Birmingham. “So I see a distinct advantage for some retailers to capitalize on.”

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