November 13, 2013
Kmart Offers New, Costly Path to Purchase
Like its sister company, Sears, Kmart has achieved a degree of success with its layaway plan by catering to consumers on the low-end of the economic ladder. Now, Kmart is following the lead of its older sibling by catering to cash- and credit-strapped consumers with the launch of a lease-to-own program.
Last November, Sears announced it was rolling out a lease-to-own program in partnership with WhyNotLeaseIt, a company that also works with Ashley Furniture, Discount Mattress and Jennifer Convertibles, to all its stores.
"Kmart’s lease-to-own program will help ease some of the financial barriers our members and customers will face this holiday season," said Jai Holtz, vice president, financial services, Sears Holdings, in a statement. "For members and customers who have an immediate need, lease-to-own gives a full house assortment of products and a way to pay."
As Sears found out, offering such a program brings on critics who argue that the markups on products are onerous. Bloomberg News reported that a $300 television would wind up costing a consumer $415 in the end.
"I’m not here to convince you lease-to-own is not more expensive than a credit program," Mr. Holtz told Bloomberg. "Our total cost of ownership, for a customer who otherwise cannot get credit, is much lower than the others in the industry offering these types of products. This is really coming from consumer demand."
Kmart’s lease-to-own program will be available on items costing $150 or more beginning on Nov. 22 in stores across the U.S.
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Recent Discussions
Discussion Questions
Will we see more retailers offering lease-to-own programs following the apparent success at Sears? Is lease-to-own consistent with the branding efforts of Kmart and Sears or is there a concern that these types of programs could negatively affect a company’s image?
Poll
“…the apparent success at Sears?” I don’t remember noting how Sears has turned around their business. In any case, these are last straw strategies that allow these retailers to exist a little longer. No retailer will copy their strategies. In fact, if Sears or Kmart do it, other retailers will judge that is a pretty good reason not to do it. Imagine, building your business for customers that can’t afford to do business with you. It has been tried in the past and has always been short lived. But, of course, “short” is the time frame in which these retailers see their life.
I really doubt we will see other companies follow suit. These are customers that don’t have have access to credit and therefore are a huge credit risk. Competitors are more than happy to have Sears/Kmart cater to this segment of the economy. IMO, it’s misleading to say this is a success for Sears or Kmart when we are seeing them close stores by the bushel. As for negatively affecting the company’s image, well I don’t see how it could get any worse at this point.
Programs like this are an acknowledgement of the economic reality. Millions have had their credit destroyed by the economic collapse. Millions have lost their jobs and have been forced to survive on unemployment, disability or minimum wage. What are these people supposed to do if a refrigerator goes down?
Sears has put together a program that allows for an alternative. If it is more expensive, that is due to the risk involved. Like “rent to own,” “lease to own” offers an alternative that one may choose of their own free will. Remember, no one is being FORCED to do anything by Sears or Kmart….
This strategy will depend on which segment of customer you are trying to service. If you customer has a tough time securing credit for larger purchases, then the lease-to-own program makes sends. It will hurt the brand if it is seen as a money making scheme vs trying to satisfy a customer segment.
On the other hand, I’ve recently heard of a number of high schools having a lease with option to buy on iPads or Apple laptops and that financial structure didn’t’ favor the student.
I don’t think many other retailers will go this route, for a plethora of reasons. But for a certain segment of the population this plan helps them and works for them and allows them to be customers. And Kmart might get the sale. Customers who regularly shop at Kmart with cash or credit are not snobby types and won’t care. I doubt the Kmart (re)branding effort will be affected one way or the other.
Basically this simply addresses the reality that some folks don’t have the economic means to purchase a product that they may need and this provides a means to do so. It is neither cheap for the consumer nor is it going to grow sales by leaps and bounds for Kmart.
Doubtful for the vast majority, but hey, there are Rent-A-Centers and pawn shops who are doing EXTREMELY well.
Two ingredients for success:
1 – Demographics: hope Kmart/Sears is being selective in their choice of stores.
2 – Execution: price points, ease of transaction, pick/return processes are VERY important to overall profitability and customer satisfaction. Easier said than done.
Good luck to Sears/Kmart, but I will not expect to see any retailers following this closely, if at all.
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“…the apparent success at Sears?” I don’t remember noting how Sears has turned around their business. In any case, these are last straw strategies that allow these retailers to exist a little longer. No retailer will copy their strategies. In fact, if Sears or Kmart do it, other retailers will judge that is a pretty good reason not to do it. Imagine, building your business for customers that can’t afford to do business with you. It has been tried in the past and has always been short lived. But, of course, “short” is the time frame in which these retailers see their life.
I really doubt we will see other companies follow suit. These are customers that don’t have have access to credit and therefore are a huge credit risk. Competitors are more than happy to have Sears/Kmart cater to this segment of the economy. IMO, it’s misleading to say this is a success for Sears or Kmart when we are seeing them close stores by the bushel. As for negatively affecting the company’s image, well I don’t see how it could get any worse at this point.
Programs like this are an acknowledgement of the economic reality. Millions have had their credit destroyed by the economic collapse. Millions have lost their jobs and have been forced to survive on unemployment, disability or minimum wage. What are these people supposed to do if a refrigerator goes down?
Sears has put together a program that allows for an alternative. If it is more expensive, that is due to the risk involved. Like “rent to own,” “lease to own” offers an alternative that one may choose of their own free will. Remember, no one is being FORCED to do anything by Sears or Kmart….
This strategy will depend on which segment of customer you are trying to service. If you customer has a tough time securing credit for larger purchases, then the lease-to-own program makes sends. It will hurt the brand if it is seen as a money making scheme vs trying to satisfy a customer segment.
On the other hand, I’ve recently heard of a number of high schools having a lease with option to buy on iPads or Apple laptops and that financial structure didn’t’ favor the student.
I don’t think many other retailers will go this route, for a plethora of reasons. But for a certain segment of the population this plan helps them and works for them and allows them to be customers. And Kmart might get the sale. Customers who regularly shop at Kmart with cash or credit are not snobby types and won’t care. I doubt the Kmart (re)branding effort will be affected one way or the other.
Basically this simply addresses the reality that some folks don’t have the economic means to purchase a product that they may need and this provides a means to do so. It is neither cheap for the consumer nor is it going to grow sales by leaps and bounds for Kmart.
Doubtful for the vast majority, but hey, there are Rent-A-Centers and pawn shops who are doing EXTREMELY well.
Two ingredients for success:
1 – Demographics: hope Kmart/Sears is being selective in their choice of stores.
2 – Execution: price points, ease of transaction, pick/return processes are VERY important to overall profitability and customer satisfaction. Easier said than done.
Good luck to Sears/Kmart, but I will not expect to see any retailers following this closely, if at all.