October 15, 2008
Are Conditions Right for Layaway Comeback?
With all the talk recently about the possibility that the U.S. could be facing economic conditions not seen since the Great Depression, the question arises as to whether a retailing invention created in the 1930’s is ready to make a comeback at stores and on websites across the nation.
Layaway programs were once fairly common before Americans began signing up for credit cards in large numbers and accumulating debt in the process. In recent years, however, Walmart and other stores have ceased offering the service citing high expenses and low returns.
Today, Kmart is one of the few remaining major retailers that allow consumers to pay off a purchase over time.
Dennis Hill, the manager of a Kmart in the Boise, Idaho area, told 2NEWS.TV that interest in the store’s layaway program has been growing.
“It’s a monthly question,” Mr. Hill said. “People will come in and say, ‘Gee are you going to keep your layaway? Everybody else has shut there’s down.’”
Mary Wilson, owner of Ishi Boutique in Boise, is another merchant that offers layaway.
“I think everybody’s credit is a little bit tighter and this gives them another option,” said Ms. Wilson.
Consumers also have the option of going online to purchase products on layaway. The website, eLayaway, boasts roughly 700 merchants on its program. The company allows consumers to purchase products over time charging shoppers a flat 1.9 percent transaction fee on all purchases.
Discussion Questions: Will consumers cut back on their use of credit cards in making retail purchases considering current economic conditions? Is the time right for layaway programs to make a comeback at retail?
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Layaway was born from the depression in the 30’s and evolved over time to become a viable payment alternative for the, then popular, “savings-minded” consumer. Credit cards offered those consumers convenience at first and then, over time, put them into overwhelming debt. Both consumers and merchants became dependent on fast credit and easy terms. Born from that consumer desperation and demand, predatory lenders and greedy financial institutions added fuel to the fire.
After 50 plus years of living beyond their means, the American consumer has finally realized the true price of credit. Failing banks, anxious merchants and consumers, economic turmoil… sound familiar? Looks like we’re back where we started.
One major difference between then and now is in technology. The internet, for example, is the invention that gave birth to reinvention. It has made it possible for innovative entrepreneurs to develop, or in some cases redevelop, solutions that were once thought dead. Online auctions, social networking and now even layaway were born long ago, considered dead or dying and reborn on the internet.
In the case of online layaway – assuming that merchants would need to “hold inventory” is like assuming that online retailers have to stock shelves on their website. The virtual aspects of the internet make online layaway ideal for products that enjoy excess availability and long term consumer demand. A bit of an oxymoron, future on-demand shipping offers a retailer a glimpse into future demands and allows them to take advantage of volume pricing and direct-to-consumer shipping. Thanks to online layaway’s innovative process, the very challenges associated with layaway in the past are now potential money savers.
Not every product will fit online layaway nor will every consumer need to use it. But when you consider the fact that there are more people using the internet that cannot shop online because they do not have available credit or credit cards then there are actually purchasing online (and that number of credit-challenged consumers is getting bigger by the day) you’ll understand why more and more merchants are adding online layaway to their suite of payment options. Like it did in the middle of the 20th century, layaway is making it possible for consumers keep consuming so that smarter merchants can live to sell another day.
I just don’t see many retailers re-starting their layaway programs. They began in an era when inventory management technology was primitive compared to today. The decision to eliminate layaway was based on long-term shopping trends, as well as financial and operational concerns.
The financial pressures certainly haven’t decreased. The costs of running a layaway program are greater now than ever. Stores simply aren’t set up to carry unproductive inventory, operationally or financially.
There is little reason to re-consider layaways if the current troubles are transitory. On the other hand, if they signal a fundamental, long-term shift in consumer buying patterns, the demand forecasting and inventory management technologies that are available are more than capable of having product available for purchase when customers are prepared to purchase, without the additional expense of a layaway program.
Yes, layaway will return.
Declining income, increasing prices, reduced credit availability and decreased disposable income make for tough times for the average consumer. Kmart still has their layaway department.
Where will it reappear first?
Now that Walmart is reducing inventory and rationalizing their category and assortments, they may feel that operating a layaway area makes sense again.
The interesting thought associated with this whole concept is that the retailer is being asked to hold one end of an arbitrage transaction without any compensation. In fact, to the contrary, the retailer carries the storage costs associated with having the physical product available. The vulnerability is especially significant for “high/low” operators as consumers load up on discounted merchandise and pay it off over time. The consumer locks in lower prices, pays off the debt and takes possession when the prices are up. There are some issues here if the consumer decides not to take possession.
Sounds a lot more difficult for the retailer than paying a transaction fee to the credit card.
Layaway? We have easy credit and tremendous numbers of different kinds of credit cards. Layaway filled this gap when credit was not available. Now, we have credit cards, debit cards and pre-paid debit cards. Getting credit from Kmart, Sears, Ford and GM are all the same. They have agreements with their major banks and providing this to their customers replaces layaway.
Layaway is over. It worked well in a cash society, but in a credit society, it’s an anachronism. And it’s important to remember that layaway was a useful tool for customers who were geographically constrained; now that customers have numerous shopping options, including shopping at less expensive stores, you’d have to wonder how valuable layaway would be to them.
American consumers have and will change their buying habits. Now that it has been confirmed that home prices will not always increase, a more conservative perspective is required. Increasing credit card financial fees and reductions in available credit will hamper retailers this Christmas season. Overall retail sales will decline this year.
Layaway programs do benefit a segment of the consuming public. The problem for most retailers is it is too late to have an impact this year. Remember, the stimulus checks were used more for debt reduction than new consumption. If the consumer decides to pay down debt rather than buy new, layaway will be important for the lower income groups next year.
For the most part, layaway is dead.
If consumers have problems with credit card debt they will have no money to make layaway payments.
The retailer has a cost associated with layaway, such as floor space and staffing the area (they do not even have enough people to staff the other major parts of the store).
I always thought Walmart’s abandoning of layaway was the wrong move, especially given that layaway found favor among older and lower income consumers–key Walmart customers. At the time that decision was made, it may have seemed logical, given consumers’ aspirational lifestyles and buying behaviors and their no holds barred use of credit cards. But times change.
The instant gratification allowed by ubiquitous credit has now morphed into the need to sacrifice and forgo purchases. Merchants are now struggling to find ways to serve a value-minded consumer who largely interprets value as price. We’re already seeing plenty of bargain-buying ads and initiatives and we’re likely to see merchants launch plenty more given the economy. Whether in-store or online, layaway should definitely be one of the options under consideration. Yes, there are operational issues that need to be addressed. But in this economy and the way shopping behaviors have changed (and are becoming hardened), it’s a differentiator that may make a big difference.
FYI–I checked with my thirty-something daughter. She did know what it was. (She reminded me that she worked retail in a local shop in when she was in high school.) I asked her if she thought it would come back. She said, “Why? Most stores give credit and you can take your purchase home. Why would someone use layaway?”
Within the current economic situation, retailers need to do everything possible to lure consumers into stores and get them to buy. If layaway offers an alternative to the high price of credit card debt, it should be considered as a payment option.
Any way you look at things, Holiday 2008 spending is going to be down. The only question is, how much?
Responsible consumers will cut back on their credit card spending because they’re up to their eyeballs in interest and late fees. Layaway gives the consumer an alternative without the added cost of processing fees. The stores that jump on this now and start promoting it as an option based on the state of the economy will get a substantial uptick from the consumers that have been price-stretched with rising food costs, and fuel and other bills going up considerably during this time.
Up to the 1950s, layaway was part of the shopping culture. People would see something they wanted. They knew they would not have the funds to buy it all at once. So, they made small deposits until they paid for the whole thing and were able to take it home. That was before credit cards.
Today, the shopper sees something they want and buys it immediately. The satisfaction comes immediately. They worry about paying for it later.
Consumers have been trained over the last 50 years to buy this way. It will be very hard for most to fight the inertia. The U.S. does not even have a savings culture. When is the last time you saw an ad for a Christmas Club?
Those who are finding themselves in the worst financial straights are burdened with every penny going to pay off debts, many of which are for credit card purchases they have made in the past. Until those problems are solved, there will be few pennies for layaway.
I wonder if my thirty-something daughter even knows what layaway is? I would like to hear the conversation between a retailer explaining layaway and a shopper. The shopper’s obvious retort would be, “You mean I give you money now, but I can’t walk out with the stuff?!”
From the retailer’s point of view, it is a nice service to offer, but one that has costs. If a retailer offered it, it would have to be handled out of the store with the merchandise delivered once it is paid for. Holding the inventory in the store as in the old days would create complexities beyond comprehension.
I don’t envision that layaway programs will be much more than a small blip on the screen for most merchants. In this day and age of immediate gratification, consumers want the product now, and will worry about paying for it later (hence the credit card balance run up). While that might not be sound personal financial planning, it reflects the reality of how most consumers shop. Putting out money each month (the pain) and not being able to have the product (the payoff) until the end just won’t appeal to most (maybe that’s the same reason most don’t go to the gym!).
More likely to work is a strong push on in-store credit card programs.
Because of the credit mess, I think offering any option to customers is a smart move. Credit is tightening and I read an article recently that said credit card companies will actually be reducing limits for individuals with spotty histories. I am sure retail credit will also take a hit and have to tighten. I would say offering layaway is a must in this current economic environment. The economy may be bad, but that doesn’t mean we can’t still offer a sterling customer service experience.
You’re kidding me right? You’d like me to take this inventory (which is costing me more to finance this holiday season than last) and incur the cost of holding it off the floor–so I can essentially extend cheap credit to a shopper who is in over her head on a mortgage and struggling to service a boatload of unsecured debt?
I struggle with this one because we all want to do what’s right for the customer. I don’t doubt this is a valued and needed service right now. However, unless retailers carefully assess the risk of each layaway customer and extend the service accordingly, I can’t imagine how this could be anything but value destroying.
What am I missing?
Perhaps this will appeal to a small niche of retired folks who still have a distrust of “bank cards.” They might use it to maximize their social security checks, so they might have enough money to still make payments on their basic cable and catch nightly reruns of The Lawrence Welk Show. As for the younger segment of consumers, this is meaningless.
Putting items on layaway is a completely foreign concept for most under thirty. The majority of young consumers have been conditioned to expect instant gratification and the forgoing of payment to a later date. The false sence of self importance we have injected into most consumers through ad campaigns that stress the “You deserve it so just consume it already” mentality will cause most to max out their cards and perhaps be crushed under the weight of their own debt long before even considering a layaway option. Layaway is dead.
Good independent retailers have always offered layaway programs.
Smart retailers should re-consider bringing it back. Success comes when your floor personnel are engaged with the consumer and can recognize when they want to buy it, but are hesitating for one reason or another. I disagree with big stores like Walmart using it. The small stores that are interactive with associates will have much greater success with layaways.
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Layaway was born from the depression in the 30’s and evolved over time to become a viable payment alternative for the, then popular, “savings-minded” consumer. Credit cards offered those consumers convenience at first and then, over time, put them into overwhelming debt. Both consumers and merchants became dependent on fast credit and easy terms. Born from that consumer desperation and demand, predatory lenders and greedy financial institutions added fuel to the fire.
After 50 plus years of living beyond their means, the American consumer has finally realized the true price of credit. Failing banks, anxious merchants and consumers, economic turmoil… sound familiar? Looks like we’re back where we started.
One major difference between then and now is in technology. The internet, for example, is the invention that gave birth to reinvention. It has made it possible for innovative entrepreneurs to develop, or in some cases redevelop, solutions that were once thought dead. Online auctions, social networking and now even layaway were born long ago, considered dead or dying and reborn on the internet.
In the case of online layaway – assuming that merchants would need to “hold inventory” is like assuming that online retailers have to stock shelves on their website. The virtual aspects of the internet make online layaway ideal for products that enjoy excess availability and long term consumer demand. A bit of an oxymoron, future on-demand shipping offers a retailer a glimpse into future demands and allows them to take advantage of volume pricing and direct-to-consumer shipping. Thanks to online layaway’s innovative process, the very challenges associated with layaway in the past are now potential money savers.
Not every product will fit online layaway nor will every consumer need to use it. But when you consider the fact that there are more people using the internet that cannot shop online because they do not have available credit or credit cards then there are actually purchasing online (and that number of credit-challenged consumers is getting bigger by the day) you’ll understand why more and more merchants are adding online layaway to their suite of payment options. Like it did in the middle of the 20th century, layaway is making it possible for consumers keep consuming so that smarter merchants can live to sell another day.
I just don’t see many retailers re-starting their layaway programs. They began in an era when inventory management technology was primitive compared to today. The decision to eliminate layaway was based on long-term shopping trends, as well as financial and operational concerns.
The financial pressures certainly haven’t decreased. The costs of running a layaway program are greater now than ever. Stores simply aren’t set up to carry unproductive inventory, operationally or financially.
There is little reason to re-consider layaways if the current troubles are transitory. On the other hand, if they signal a fundamental, long-term shift in consumer buying patterns, the demand forecasting and inventory management technologies that are available are more than capable of having product available for purchase when customers are prepared to purchase, without the additional expense of a layaway program.
Yes, layaway will return.
Declining income, increasing prices, reduced credit availability and decreased disposable income make for tough times for the average consumer. Kmart still has their layaway department.
Where will it reappear first?
Now that Walmart is reducing inventory and rationalizing their category and assortments, they may feel that operating a layaway area makes sense again.
The interesting thought associated with this whole concept is that the retailer is being asked to hold one end of an arbitrage transaction without any compensation. In fact, to the contrary, the retailer carries the storage costs associated with having the physical product available. The vulnerability is especially significant for “high/low” operators as consumers load up on discounted merchandise and pay it off over time. The consumer locks in lower prices, pays off the debt and takes possession when the prices are up. There are some issues here if the consumer decides not to take possession.
Sounds a lot more difficult for the retailer than paying a transaction fee to the credit card.
Layaway? We have easy credit and tremendous numbers of different kinds of credit cards. Layaway filled this gap when credit was not available. Now, we have credit cards, debit cards and pre-paid debit cards. Getting credit from Kmart, Sears, Ford and GM are all the same. They have agreements with their major banks and providing this to their customers replaces layaway.
Layaway is over. It worked well in a cash society, but in a credit society, it’s an anachronism. And it’s important to remember that layaway was a useful tool for customers who were geographically constrained; now that customers have numerous shopping options, including shopping at less expensive stores, you’d have to wonder how valuable layaway would be to them.
American consumers have and will change their buying habits. Now that it has been confirmed that home prices will not always increase, a more conservative perspective is required. Increasing credit card financial fees and reductions in available credit will hamper retailers this Christmas season. Overall retail sales will decline this year.
Layaway programs do benefit a segment of the consuming public. The problem for most retailers is it is too late to have an impact this year. Remember, the stimulus checks were used more for debt reduction than new consumption. If the consumer decides to pay down debt rather than buy new, layaway will be important for the lower income groups next year.
For the most part, layaway is dead.
If consumers have problems with credit card debt they will have no money to make layaway payments.
The retailer has a cost associated with layaway, such as floor space and staffing the area (they do not even have enough people to staff the other major parts of the store).
I always thought Walmart’s abandoning of layaway was the wrong move, especially given that layaway found favor among older and lower income consumers–key Walmart customers. At the time that decision was made, it may have seemed logical, given consumers’ aspirational lifestyles and buying behaviors and their no holds barred use of credit cards. But times change.
The instant gratification allowed by ubiquitous credit has now morphed into the need to sacrifice and forgo purchases. Merchants are now struggling to find ways to serve a value-minded consumer who largely interprets value as price. We’re already seeing plenty of bargain-buying ads and initiatives and we’re likely to see merchants launch plenty more given the economy. Whether in-store or online, layaway should definitely be one of the options under consideration. Yes, there are operational issues that need to be addressed. But in this economy and the way shopping behaviors have changed (and are becoming hardened), it’s a differentiator that may make a big difference.
FYI–I checked with my thirty-something daughter. She did know what it was. (She reminded me that she worked retail in a local shop in when she was in high school.) I asked her if she thought it would come back. She said, “Why? Most stores give credit and you can take your purchase home. Why would someone use layaway?”
Within the current economic situation, retailers need to do everything possible to lure consumers into stores and get them to buy. If layaway offers an alternative to the high price of credit card debt, it should be considered as a payment option.
Any way you look at things, Holiday 2008 spending is going to be down. The only question is, how much?
Responsible consumers will cut back on their credit card spending because they’re up to their eyeballs in interest and late fees. Layaway gives the consumer an alternative without the added cost of processing fees. The stores that jump on this now and start promoting it as an option based on the state of the economy will get a substantial uptick from the consumers that have been price-stretched with rising food costs, and fuel and other bills going up considerably during this time.
Up to the 1950s, layaway was part of the shopping culture. People would see something they wanted. They knew they would not have the funds to buy it all at once. So, they made small deposits until they paid for the whole thing and were able to take it home. That was before credit cards.
Today, the shopper sees something they want and buys it immediately. The satisfaction comes immediately. They worry about paying for it later.
Consumers have been trained over the last 50 years to buy this way. It will be very hard for most to fight the inertia. The U.S. does not even have a savings culture. When is the last time you saw an ad for a Christmas Club?
Those who are finding themselves in the worst financial straights are burdened with every penny going to pay off debts, many of which are for credit card purchases they have made in the past. Until those problems are solved, there will be few pennies for layaway.
I wonder if my thirty-something daughter even knows what layaway is? I would like to hear the conversation between a retailer explaining layaway and a shopper. The shopper’s obvious retort would be, “You mean I give you money now, but I can’t walk out with the stuff?!”
From the retailer’s point of view, it is a nice service to offer, but one that has costs. If a retailer offered it, it would have to be handled out of the store with the merchandise delivered once it is paid for. Holding the inventory in the store as in the old days would create complexities beyond comprehension.
I don’t envision that layaway programs will be much more than a small blip on the screen for most merchants. In this day and age of immediate gratification, consumers want the product now, and will worry about paying for it later (hence the credit card balance run up). While that might not be sound personal financial planning, it reflects the reality of how most consumers shop. Putting out money each month (the pain) and not being able to have the product (the payoff) until the end just won’t appeal to most (maybe that’s the same reason most don’t go to the gym!).
More likely to work is a strong push on in-store credit card programs.
Because of the credit mess, I think offering any option to customers is a smart move. Credit is tightening and I read an article recently that said credit card companies will actually be reducing limits for individuals with spotty histories. I am sure retail credit will also take a hit and have to tighten. I would say offering layaway is a must in this current economic environment. The economy may be bad, but that doesn’t mean we can’t still offer a sterling customer service experience.
You’re kidding me right? You’d like me to take this inventory (which is costing me more to finance this holiday season than last) and incur the cost of holding it off the floor–so I can essentially extend cheap credit to a shopper who is in over her head on a mortgage and struggling to service a boatload of unsecured debt?
I struggle with this one because we all want to do what’s right for the customer. I don’t doubt this is a valued and needed service right now. However, unless retailers carefully assess the risk of each layaway customer and extend the service accordingly, I can’t imagine how this could be anything but value destroying.
What am I missing?
Perhaps this will appeal to a small niche of retired folks who still have a distrust of “bank cards.” They might use it to maximize their social security checks, so they might have enough money to still make payments on their basic cable and catch nightly reruns of The Lawrence Welk Show. As for the younger segment of consumers, this is meaningless.
Putting items on layaway is a completely foreign concept for most under thirty. The majority of young consumers have been conditioned to expect instant gratification and the forgoing of payment to a later date. The false sence of self importance we have injected into most consumers through ad campaigns that stress the “You deserve it so just consume it already” mentality will cause most to max out their cards and perhaps be crushed under the weight of their own debt long before even considering a layaway option. Layaway is dead.
Good independent retailers have always offered layaway programs.
Smart retailers should re-consider bringing it back. Success comes when your floor personnel are engaged with the consumer and can recognize when they want to buy it, but are hesitating for one reason or another. I disagree with big stores like Walmart using it. The small stores that are interactive with associates will have much greater success with layaways.