September 10, 2012
Layaway Turf War Breaks Out
On Friday, Kmart joined Toys ‘R’ Us and Walmart in heralding an ever-more competitive layaway program.
Broadcasting the news on the opening of its web page, Kmart announced it is waiving the fees that shoppers pay to open its interest free, pay-over-time program through Nov. 17. Sears, its parent, will have a similar program in October, but specific dates are not finalized. Both Kmart and Sears have until now charged $5 for an 8-week layaway contract and $10 for the 12-week program.
Reacting to customer feedback, last Wednesday, Walmart said it was lowering its holiday layaway program fee to $5 from $15. Shoppers get a full refund in a form of a Walmart gift card when they make their final layaway payment.
Walmart dropped layaway for anything but jewelry in 2006 but brought it back last year. As reported, the new program, which starts Sept. 16 and runs through Dec. 14, will last a month longer than last year’s and will include small home appliances and big-ticket sporting as well as the toys and electronics featured last year.
Last Monday, Toys ‘R’ Us Inc. said it was eliminating the upfront service fee for layaway orders created in-store from Sept. 4 through Oct. 31. After Oct. 31, a $5 service fee will apply. Toys ‘R’ Us revived its layaway program in 2009 after a five-year hiatus and expanded it last year to include nearly everything in the store.
Jai Holtz, VP of financial services for Sears Holdings, told the Associated Press that Kmart’s decision to waive the fee wasn’t in response to its rivals’ moves. A no-fee trial was being tested at 80 of its 1,200 Kmart doors during the past few months and had been well received by shoppers. Mr. Holtz said shoppers "are watching the money they spend," and "customers continue to require more value."
Other retailers offering a layaway program include Best Buy, which charges a 5 percent fee although it doesn’t apply for sales items or some cellphones. T.J. Maxx and Marshalls charges a $5 fee for their layaway program.
- Layaway available on hundreds of items year round – Sears Holdings
- Now On Rollback at Walmart: Holiday Layaway Fees – Walmart
- Toys"R"Us Introduces Enhanced Holiday Layaway Program With No Upfront – Toys ‘R’ Us press release
- Kmart Removes Layaway Fees to Help Boost Holiday Shopping – Bloomberg News
- Kmart drops layaway fees through Nov. 17 – Associated Press
- Kmart follows Toys R Us and drops layaway fees – USA Today
BrainTrust
Recent Discussions
Discussion Questions
Are layaway deals worth it for retailers? Are the risks of delinquencies outweighed by the needs of lower income households in the current economic climate? Are retailers not offering layaway at an even bigger disadvantage?
Poll
I don’t really understand the logic of layaway. Why not just put it on your credit card and pay it off? Why not just put money aside on your own and go buy it when you are ready? Layaway; doesn’t that mean you have to make trip to the store to buy the product to layaway, and then another trip to pick it up? I have never met anyone in my life who says they are buying something on layaway. IMO, if you don’t have the money now, you probably won’t have it later.
Layaways are appealing to consumers and retailers. Consumers have time to pay for purchases. Retailers lock consumers into their stores. The battle over fees is not surprising. It’s more important to get consumers into stores, and get them buying, than to collect a small service fee. The elimination of fees could hurt competitors without layaway programs.
Layaway has never been profitable for retailers. The cost of managing the program including staffing, storage space and abandoned purchases is costly.
That said, layaway provides a way for millions of Americans who have no access to credit cards to make holiday or big ticket purchases.
It’s a big gamble for retailers who don’t offer it as they lose both the business that the potential lay away customer brings on a transactional level, but the potential to losing that customer altogether.
There are many tangible and intangible costs to a retailer who doesn’t offer layaway. Better to calculate those costs directly through a managed/planned program than to face the possibility of lost sales and customer counts during the highly critical holiday sales period.
Layaway deals were laid away in the past for sound economic reasons. They aren’t the most efficient way to turn over products quickly or profitably. Then when the current economy got bad, the layaway programs arose again. No one wants to be deprived of bounty’s offer at retail.
As to disadvantages, if you don’t offer such a program, it would seem that layaway’s greatest appeal and value depend on your primary customer base. I don’t see Nordstrom’s or Target being hurt if they stay away from layaways.
My recollection of why the layaway programs were retired was to reduce shrink as a result of consumers with long pay periods re-selecting up-to-date merchandise. The result was the store having one or two odd lots to clearance and markdown. There was also the impact of credit cards making it easier to buy now and pay later. In the present economy there is a shortfall of credit approved consumers available for the amount of product we have out there. This makes layaway much more inviting, but I think the possibility of an increase in markdowns will hurt more than it helps the bottom line.
The consumer who is making use of layaway programs is likely to be living in a household earning $25,000 or less. High income households make use of layaway programs, to be sure, there are just fewer of those households in comparison. It’s important to note that these consumers are by no means less generous or in the spirit as the Holiday Season unfolds. Since they face greater financial uncertainty, a larger portion of them are uncertain as to their spending plans this early in the year.
The July BIGinsight Monthly Consumer Survey asked consumers of the December Holiday spending plans. 35.6% of Adults with household income of $25,000 or less said it is too early to decide. In household income of $25,000-$50,000 and those earning $50,000+, 31.2% and 22.4% said it was too early to tell.
Layaway programs can make it an easier hurdle to find a value and make a purchase during the in the August, September, October time frame for these wage earners. That stimulates sales for merchants, brings them into their stores more frequently, and permits effective budgeting planning for all income levels.
The promotional program’s benefit to retailers depends upon the demographic, largely financial, makeup of their clientele.
For some retailer profiles, layaway with compelling offers to steal share ahead of the holiday buying season makes perfect sense. In the specific case of Kmart, they were very innovative in bringing it back several years ago ahead of the competition. The consumer gets to “store” their goods at the retailer vs. hiding that new shiny bike or toys/electronics in the upstairs attic all summer long.
Why buy on terms and pay interest using the private label credit card when you can hold the goods and pay over time with no interest? It makes perfect sense. You just have to put yourself in the mindset of the customer — and for Kmart, Target, and Walmart it is early seasonal sales that can provide insight for merchant planning/analysis — early trends.
Yes, yes, and yes. Any way to put more product in a consumer’s hands, even after a layaway delay, is just better business. It increases the purchases that the customer makes in the store during that trip (since they have more money in their pocket), and keeps them coming back for future trips. This is gold for any smart retailer who recognizes these advantages.
I remember working at a Turnstyle 35 years ago (they were part of Jewel Corp) and the store manager complaining about doing layaway back then. It’s a great way to capture early sales and a large part of the customer’s list, but it is expensive, labor intensive, and with risks.
The upside is a lot of layaway sales are at full price. The downside a lot of products not picked up are because they went on sale somewhere else.
I don’t think the retailers who are targeting this customer have a choice but to do it. It will be interesting if they charge for it next year or not.
Retailers are looking for as many ways as possible to get as many people in the doors as they possibly can. The downside of this is not as significant as the upside. Layaway is a significant method for those buyers looking to make the purchase without the high credit card interest payment. Nothing wrong with that.
Suffice it to say, whatever advantage companies may gain from these types of programs will evaporate as the fees do the same. Will retailers without such programs be at a disadvantage? Probably not…that this is a “battle” between Walmart, Kmart and Toys “R” Us — two concerns who spend much of their time dancing on the edge of the abyss — says something.
Walmart has taken a different approach through its Asda chain in the UK — savings cards with guaranteed bonus, amount dependent on how much is saved. Of course if the customer doesn’t spend their savings with Asda, they will lose them so it still gets them into the store to buy something without the administrative hassle of layaway. See "Christmas comes early as Asda opens Santa’s grottos in August".
Layaways are, simply put, a promotional program aimed at consumers with limited wealth and resources — and with no or limited access to credit or credit cards. The economy, for many overall and this consumer group in particular, has shown only marginal improvement, and the unemployment percentage, occasional small improvements not withstanding, remains very high. Layaway programs provide retailers with the ability to reach and sell this market segment, and for the retailers listed in the discussion story, these consumers make up a not insignificant portion of their customer base. With that in mind, layaway programs, with all their downsides, checkered career over time, problems, etc., still make very good sense for retailers in opening up a way to get to, and sell, this market segment.
Like any marketing program, layaway has benefits and costs associated with it. Each retailer must do the financial projections and determine if spending in this area drives the incremental customer attraction, retention, and engagement metrics necessary for their financial model, vs. other marketing expense choices. Then, the retailer must do the analysis to see if the forecast metrics come in as anticipated and adjust accordingly as they move along.
In today’s environment, it is probably necessary for this segment of retail to be in the layaway game — as long as the anticipated results are achieved and the overall marketing budget as a percent to revenues is adhered to. It’s all about disciplined forecasting and ongoing analysis of results.
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I don’t really understand the logic of layaway. Why not just put it on your credit card and pay it off? Why not just put money aside on your own and go buy it when you are ready? Layaway; doesn’t that mean you have to make trip to the store to buy the product to layaway, and then another trip to pick it up? I have never met anyone in my life who says they are buying something on layaway. IMO, if you don’t have the money now, you probably won’t have it later.
Layaways are appealing to consumers and retailers. Consumers have time to pay for purchases. Retailers lock consumers into their stores. The battle over fees is not surprising. It’s more important to get consumers into stores, and get them buying, than to collect a small service fee. The elimination of fees could hurt competitors without layaway programs.
Layaway has never been profitable for retailers. The cost of managing the program including staffing, storage space and abandoned purchases is costly.
That said, layaway provides a way for millions of Americans who have no access to credit cards to make holiday or big ticket purchases.
It’s a big gamble for retailers who don’t offer it as they lose both the business that the potential lay away customer brings on a transactional level, but the potential to losing that customer altogether.
There are many tangible and intangible costs to a retailer who doesn’t offer layaway. Better to calculate those costs directly through a managed/planned program than to face the possibility of lost sales and customer counts during the highly critical holiday sales period.
Layaway deals were laid away in the past for sound economic reasons. They aren’t the most efficient way to turn over products quickly or profitably. Then when the current economy got bad, the layaway programs arose again. No one wants to be deprived of bounty’s offer at retail.
As to disadvantages, if you don’t offer such a program, it would seem that layaway’s greatest appeal and value depend on your primary customer base. I don’t see Nordstrom’s or Target being hurt if they stay away from layaways.
My recollection of why the layaway programs were retired was to reduce shrink as a result of consumers with long pay periods re-selecting up-to-date merchandise. The result was the store having one or two odd lots to clearance and markdown. There was also the impact of credit cards making it easier to buy now and pay later. In the present economy there is a shortfall of credit approved consumers available for the amount of product we have out there. This makes layaway much more inviting, but I think the possibility of an increase in markdowns will hurt more than it helps the bottom line.
The consumer who is making use of layaway programs is likely to be living in a household earning $25,000 or less. High income households make use of layaway programs, to be sure, there are just fewer of those households in comparison. It’s important to note that these consumers are by no means less generous or in the spirit as the Holiday Season unfolds. Since they face greater financial uncertainty, a larger portion of them are uncertain as to their spending plans this early in the year.
The July BIGinsight Monthly Consumer Survey asked consumers of the December Holiday spending plans. 35.6% of Adults with household income of $25,000 or less said it is too early to decide. In household income of $25,000-$50,000 and those earning $50,000+, 31.2% and 22.4% said it was too early to tell.
Layaway programs can make it an easier hurdle to find a value and make a purchase during the in the August, September, October time frame for these wage earners. That stimulates sales for merchants, brings them into their stores more frequently, and permits effective budgeting planning for all income levels.
The promotional program’s benefit to retailers depends upon the demographic, largely financial, makeup of their clientele.
For some retailer profiles, layaway with compelling offers to steal share ahead of the holiday buying season makes perfect sense. In the specific case of Kmart, they were very innovative in bringing it back several years ago ahead of the competition. The consumer gets to “store” their goods at the retailer vs. hiding that new shiny bike or toys/electronics in the upstairs attic all summer long.
Why buy on terms and pay interest using the private label credit card when you can hold the goods and pay over time with no interest? It makes perfect sense. You just have to put yourself in the mindset of the customer — and for Kmart, Target, and Walmart it is early seasonal sales that can provide insight for merchant planning/analysis — early trends.
Yes, yes, and yes. Any way to put more product in a consumer’s hands, even after a layaway delay, is just better business. It increases the purchases that the customer makes in the store during that trip (since they have more money in their pocket), and keeps them coming back for future trips. This is gold for any smart retailer who recognizes these advantages.
I remember working at a Turnstyle 35 years ago (they were part of Jewel Corp) and the store manager complaining about doing layaway back then. It’s a great way to capture early sales and a large part of the customer’s list, but it is expensive, labor intensive, and with risks.
The upside is a lot of layaway sales are at full price. The downside a lot of products not picked up are because they went on sale somewhere else.
I don’t think the retailers who are targeting this customer have a choice but to do it. It will be interesting if they charge for it next year or not.
Retailers are looking for as many ways as possible to get as many people in the doors as they possibly can. The downside of this is not as significant as the upside. Layaway is a significant method for those buyers looking to make the purchase without the high credit card interest payment. Nothing wrong with that.
Suffice it to say, whatever advantage companies may gain from these types of programs will evaporate as the fees do the same. Will retailers without such programs be at a disadvantage? Probably not…that this is a “battle” between Walmart, Kmart and Toys “R” Us — two concerns who spend much of their time dancing on the edge of the abyss — says something.
Walmart has taken a different approach through its Asda chain in the UK — savings cards with guaranteed bonus, amount dependent on how much is saved. Of course if the customer doesn’t spend their savings with Asda, they will lose them so it still gets them into the store to buy something without the administrative hassle of layaway. See "Christmas comes early as Asda opens Santa’s grottos in August".
Layaways are, simply put, a promotional program aimed at consumers with limited wealth and resources — and with no or limited access to credit or credit cards. The economy, for many overall and this consumer group in particular, has shown only marginal improvement, and the unemployment percentage, occasional small improvements not withstanding, remains very high. Layaway programs provide retailers with the ability to reach and sell this market segment, and for the retailers listed in the discussion story, these consumers make up a not insignificant portion of their customer base. With that in mind, layaway programs, with all their downsides, checkered career over time, problems, etc., still make very good sense for retailers in opening up a way to get to, and sell, this market segment.
Like any marketing program, layaway has benefits and costs associated with it. Each retailer must do the financial projections and determine if spending in this area drives the incremental customer attraction, retention, and engagement metrics necessary for their financial model, vs. other marketing expense choices. Then, the retailer must do the analysis to see if the forecast metrics come in as anticipated and adjust accordingly as they move along.
In today’s environment, it is probably necessary for this segment of retail to be in the layaway game — as long as the anticipated results are achieved and the overall marketing budget as a percent to revenues is adhered to. It’s all about disciplined forecasting and ongoing analysis of results.