Layaway’s Goneaway
By George Anderson
You may remember your parents doing it when you were a kid – choosing a gift for the holidays and then having the store hold onto it until they were able to finish paying for
it.
This method of buying gifts known as a layaway seems like something out of yesteryear and, for the most part, it is. But, as an Associated Press report points out, there
are still some retailers who offer the service.
Most don’t because consumers and retailers prefer that shoppers pay for their merchandise with a credit card and take it straight home.
Retailers that offer a layaway program have to hold onto the merchandise designating space and personnel to take care of it.
Wal-Mart, Kmart, Boscov’s, TJ Maxx and Marshalls are among the retailers that still offer shoppers a layaway alternative.
Russ Colton, store manager of a Wal-Mart in the Lancaster, Penn.-area, said of the program, “It’s a competitive advantage,” adding, “We listen to our customers, and they say
they want it and appreciate it.”
Boscov’s store manager Jack Ziegler said, “We’re more of a traditional department store. We try to keep a customer within our store.”
Most retailers have seen a decline in layaways as consumers use other means of purchase.
Retailer restrictions placed on layaways have also contributed. While stores typically do not charge interest on the purchase of a layaway item, some have begun tagging on a
fee for holding an item as well as levying a charge when a layaway purchase is canceled.
Kmart changed its “price adjustment” policy in a Lancaster-area store and saw a drop off in layaways. Before the change, if an item was discounted during an eight-week period
while it was held on layaway, the store would charge the buyer the sale price. Now, the store will adjust the price if it goes on sale within one week of its initial purchase.
The Wal-Mart managed by Mr. Colton has seen an increase in layaways and has had to add staff to deal with it. He attributes the success of the program to Wal-Mart’s no-risk plan.
The retailer does not charge any fees to make or cancel a purchase.
“There’s nothing to lose,” he said.
Moderator’s Comment: Has the increase in the numbers of people living below and near the poverty level made the conditions right for layaway programs?
Do the numbers of people struggling with credit card debt make it right for layaway programs to be started in other stores serving more middle class consumers? –
George Anderson – Moderator
Mark is correct about the supply-side reasons why layaway isn’t workable anymore. And from the consumer side, the powerful pull of instant gratification outweighs economic constraints. Many consumers would rather buy a lesser item now rather than waiting to get a better one. To be sure, there are still some patient consumers out there, but today they’re the exception instead of the rule.
After reading thoughts and comments from those on the panel, it seems all are in agreement that layaway is a goner.
Interestingly enough, over the weekend, I was having a friendly chat with one of my tenants in Riverside, CA. I was asking him about his “latest” Air Jordans. The guy is at best unbankable, poor or no credit and lives paycheck to paycheck. He has a wife who works and they have two girls in elementary school. He lives for the latest Sean John, Guess, Air Jordans along with Bratz kids and toys to hit the stores for him and his family. When I suggest to save for something larger like a house or work on your credit by paying on-time, they shrug it off that’s it no big deal. They will go without a landline and cellular phone service, ask to borrow five dollars for milk because payday is not here, but he’s first in line for the Air Jordans.
I asked him, since you have no debit or credit cards and your weekly check wouldn’t cover the purchase, how do you buy them? He simply answered….layaway. The tenant even stated that many stores at the mall that his family shops (Tyler Mall Riverside, CA) offer Layaway. He says most require at least a 30% percent down and some charge a small fee (he says about $1.00 or $2.00). He then has 30 days to pay it off or he loses the deposit.
To me, 30% down seems a bit steep for a layaway, but I don’t use layaway. My gut feeling is a bunch of consumers are out there such as my tenants that are the unbankables, whether it be for a lack of credit or no documentation to obtain credit. Those unbankabales are probably off the radar screen by retailers as ones they are targeting. I bet those customers watch television, listen to music and watch for the latest trends among their friends and family.
I bet, after further looking into this topic, many retailers have a thriving layaway program and realize that many do not have credit or debit cards and layaway is working for them.
As we closed the conversation, I asked him do you shop at those stores without layaway? His answer was no. My tenant reasoned that, even though another lower priced retailer than his chosen store may offer a lower price, those at the mall that offer layaway offer a payment option that fits his needs.
He said they hate Kmart’s layaway program and they like Wal-Mart’s, but he said not for clothes.
Could it be that layaway still has a niche for retailers within certain parts of the U.S.? My feeling is that these types of low-income customers probably have a better use for that money, but if they are going to spend it, as a retailer, why shouldn’t I capture it if someone else is?
It’s not up to me to pass judgment on how they spend their money. As long as they pay the rent on time, go ahead and buy the $170 pair of Air Jordans, on layaway, of course!
No, layaway type programs really don’t have a place in today’s retail environment. The risk to the retailer of unclaimed merchandise becoming outdated and requiring additional markdowns is too great to offset the increase in sales a layaway program may bring.
It strikes me that there is a pretty basic difference between layaway and buying on credit. In the former, customers are saving up for a purchase that they can then afford to take home with them. In the latter, they are taking on debt that often doesn’t feel like they are really spending money and can easily accumulate until it gets out of control. I have often said that people who cannot afford credit should not be encouraged to use it. Saving up for a purchase, while being sure that it is being held in reserve for you, seems a much more sensible option for those who cannot afford to buy outright.
One of my many college jobs was in a pawn shop, where I loaned folks money on their possessions, tagged the items, and stored them in the back. The pawn shop required minimum weekly repayment installments. Failure to pay meant that the customer lost all their previous payments, and that I owned the item and could put it out for sale. Perhaps layaway programs could incorporate the same practice.
I think the retailer’s decision on layaway has to be done completely on faith. Especially in an operation without a frequent shopper card, there is no way to really know whether offering layaway is an economic benefit or not.
On the surface, it seems that one or two “left behind” items could quickly absorb the profits from the limited extra sales. The big unknown is what the loyalty effects of such a program are as the retailer becomes the shopper’s favorite store. Offering layaway to the customer who needs it may have a much broader effect than anyone can measure.
For all the reasons mentioned (lost merchandise, obsolescence, lost sales, etc.), the layaway decision should include some procedures to help the store execute successfully. The last thing you want is for Santa Clause to not have the item that has been planned for months in advance, or be left with an artificial Christmas tree in January.
Layaway is going away. There is no reason for this dinosaur to continue existing in today’s environment of credit. Credit cards abound everywhere and the need for layaway (for people who don’t have credit) is rapidly diminishing as more stores compete on a Hi-Lo or EDLP mass approach. What is not available at one retailer will be available at another next week. Product lifecycles have accelerated and next generation products are available at the same price or lower as the ones they replace, with better features. This has further discouraged the usage of layaway, as customers no longer want to own an outdated product. Layaway was great in its day, but is no longer necessary in today’s modern retailing environment.
Layaway programs are part of retail’s passing parade. As Bill Bishop points out, they still have a place in serving many people
but, as Mark and Peter report, the reasons for their basic creation are diminishing in today’s ever-changing retailing dynamics.
There’s a lot of talk today about new payment systems, and now we find an old payment system re-emerging. The growth of layaway makes a lot of sense, particularly for shoppers who are not affiliated with banks or other financial institutions and have been burned by credit.
Just as there has been a proliferation in store choice, we can expect a greater proliferation in payment choice. Layaways fit the needs and personal circumstances of an important segment of shoppers who otherwise might not be active in the market. Wouldn’t it be great if properly packaged layaway plans were found to generate real incremental sales?
If layaways were a loser, why would Wal-Mart offer them? Generally Wal-Mart is noted for its profit orientation. Layaways bring customers back into the store as they make their payments. Perhaps they buy other things on impulse as they come back again and again. Perhaps the retailer benefits by getting cash from a customer, without a bank service charge. Perhaps the customer will shop first at the store that caters to their needs. And the proportion of undocumented people in this country is growing very quickly, certainly much faster than the rest of the population. Undocumented people are cash customers who can’t get credit cards. Why not serve a growth market that pays cash? Retailers who sell on layaway have trouble winning Sales Prevention awards.