In wake of recession, layaway sheds its negative stigmaObservers say layaway — in which stores hold items for customers who pay for them over two or three months — has made a big comeback since the recession.
By: Candace Renalls, Duluth News Tribune
Layaway has been a part of Pat Esse’s holiday shopping strategy for years.
“I use layaway all the time,” she said.
Generous with her gifts to her children and grandchildren, the Duluth woman puts items on layaway months before the holidays as part of her budgeting.
“It helps me because I can pick out nice gifts for my daughters-in-law, sons, granddaughters and grandsons,” said Esse, 60. “I can put them on layaway and so at Christmas time I’m not strapped.”
Observers say layaway — in which stores hold items for customers who pay for them over two or three months — has made a big comeback since the recession
“People still want what they want, but they don’t have the credit or the credit cards to finance it,” said industry expert Thomas Harpointer, CEO of AIS Media Inc. in Atlanta. “They don’t want to pay the high interest on a credit card. So layaway is an alternative.”
Layaway is not just for lower-income people anymore, he said.
“Now people are using layaway as a shopping cart,” he said. “Let the store hold it. If I change my mind, I don’t have to buy it.”
Generally, stores require a deposit based on the total cost of the merchandise with regular payments made over time until paid in full. Many charge a nominal service fee.
With the store holding the merchandise, layaway shoppers get free storage for Christmas gifts, without paying any interest. And there’s no risk of shoppers not being able to return items as with regular purchases.
“It’s actually quite compelling,” Harpointer said. “Why pay interest? A small deposit is all that’s required.”
Using layaway, Esse has no post-holiday credit-card shock for the handheld games, electronic toys, action figures and other gifts she buys for her eight grandchildren and other family members.
“When I see them on sale in the paper, I go to Kmart and put them on layaway,” she said. “I use it because of my budget and because it’s cheaper than charge cards. And when you get it out, it’s paid for and you don’t owe anything on it.”
Esse should know about smart spending. She’s a financial worker for St. Louis County.
Layaway use rising
At the West Duluth Kmart, layaways are up 30 to 40 percent this year over last, store manager Gene Frost said. Although it’s offered year-round, the months leading up to the holidays, starting in September and October, is peak layaway time, he said.
Kmart requires $15 down or 10 percent, whichever is greater, with payments over eight or 12 weeks and no minimum purchase.
“Right now, more people are making payments than putting purchases on layaway; a lot of them are paying them off,” said Frost, noting that toys, electronics, TVs and clothing are popular layaway items.
At Kmart, the $5 service fee was waived before Black Friday as a promotion. Savvy shoppers such as Esse took advantage of the free layaway.
Walmart had discontinued its layaway program in 2006 but brought it back last year for the holidays by customer demand, Walmart spokeswoman LaToya Evans said.
This year, Walmart started its seasonal layaway program on Sept. 14, a month earlier than last year. It also lowered its service fee from $15 to $5, which is refunded in a Walmart gift card when items are paid for. A cancellation fee also was dropped for the program that ended Friday.
It paid off.
In less than a month, Walmart already had $400 million in U.S. layaway sales. That’s half the total put on layaway during the entire 2011 holiday shopping season, Evans said.
Meanwhile, online layaway is coming on strong, Harpointer said.
“Online layaway didn’t exist a few years ago,” he said. “By next year, I wouldn’t be surprised if it didn’t double, triple or more,”
But, he said, adding a potential layaway items to one’s online shopping cart is less a commitment than in an actual cart in an actual store where the purchase is almost always assured.
“When people shop online, there’s a lot of shopping cart abandonment,” he said.
Luring shoppers back
Besides sales, layaway gets shoppers back into stores … and that’s an accomplishment, Harpointer said.
“Getting them to come back is the biggest challenge,” he said. “When people put things on layaway, stores know they’ll be back. They know that getting them to come back drives sales way up.”
But most stores don’t offer layaway.
Best Buy and TJ Maxx stores reportedly offer it, but their Duluth stores currently do not. Department stores like Younkers and JC Penney don’t offer it, let alone high-end Bloomingdale’s and Saks Fifth Avenue in larger metro areas.
So why don’t more stores offer it?
“There’s a negative stigma,” Harpointer said. “It’s still seen as a poor man’s credit.”
Stores with layaway programs also have to have the space to hold the merchandise and be committed to operating the program, he said.
Then, there are stores that offer layaway but don’t promote it.
Sears offers layaway — 10 percent down with a minimum purchase of $100 —but it’s not used much. At the Miller Hill Mall Sears store, one sales clerk said he’s only done one layaway, a $500 toolbox, in the two years he’s worked there.
Smaller stores are often willing to work with customers on layaway payment plans. Hallmark stores offers layaway in large part to accommodate Hallmark ornament collectors who snap up the new ornaments when they come out in July.
“It’s definitely a service,” said Cindy Hedlund, owner of Pam’s Hallmark at Miller Hill Mall. “They come in in July, they put 20 percent down and they pay whatever they can once a month and pick them up by Dec. 15.”
About 40 die-hard collectors use layaway at her store, buying at least 10 ornaments. With ornaments averaging $15 a piece and costing as much as $35, most layaways are for more than $100.
“They’re going to buy it anyway; it just makes it easier,” Hedlund said. “In the long run, people buy more because we’re offering it.”
Among the Hallmark ornament collectors is Esse, who puts 10 to 12 ornaments on layaway at Allison’s Hallmark in downtown Duluth as well as some Precious Moments figurines.
“I put it on layaway and pay a little each payday,” she said.” Before you know it, you’ve got it.”
Helzberg Diamonds is among the jewelry stores that offer layaway to spur sales.
“What’s really cool is you price-lock it if the price goes up,” he said. “But if the price goes down, you get the better price,” said Dick Bellamy, manager of the Miller Hill Mall store.
There’s no service or cancellation fees for their 10-month layaway plan that requires 10 percent down. And like most layaway programs, customers get their money back if they change their mind.
“It’s really popular,” Bellamy said. “It serves that customer who at that time can’t make that big disbursement. And nobody gets turned down for layaway.”
It’s a big portion of his business. So for Helzberg customers, it becomes a choice of cash, credit or layaway.