Layaway makes a return as stores court strapped consumers

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  • There is a resurgence of layaway shopping in today’s harder economic times and manager Candy Powell says as a single mom she uses the service during the holiday season and puts items on layaway for her teenage son at Kmart in Concord, Calif., on Tuesday, October 28, 2008. Layaway items are stored in plastic bags upstairs at the store. (Susan Tripp Pollard/Contra Costa Times)

  • In this photo made Thursday, Aug. 20, 2009, Tammy Wyatt, a layaway specialist at Kmart in Conover, N.C., hangs a bag containing back-to-school supplies that a customer has put on layaway. It is unheard of for layaway rooms to be so packed at back-to-school time and for the packages to include relatively cheap school supplies. (AP Photo/Nell Redmond)

  • HOLD FOR RELEASE UNTIL 12:01 a.m. EDT MONDAY, OCT. 19. THIS PHOTO MAY NOT BE PUBLISHED, BROADCAST OR POSTED ONLINE BEFORE 12:01 a.m. EDT. FILE – In this Nov. 21, 2008 file photo, shoppers wait in the check out line at a Toys R Us, in New York. Toy retailer Toys R Us Inc. said Monday Oct. 19, 2009 it is introducing a layaway program for larger ticket-items such as bikes and cribs, ahead of the holiday season. (AP Photo/Mark Lennihan, file)

Heading into the critical holiday shopping season, more retailers are starting layaway programs, an old-fashioned retail practice last popular in the 1960s and 1970s, to entice cash- and credit-strapped shoppers into their stores.

Burlington Coat Factory, Kmart, Marshalls, Sears, T.J. Maxx and Toys R Us are among the retailers offering layaway programs, and a growing number of Web sites have jumped into the business.

An alternative to using credit cards or cash to pay for merchandise, layaways require shoppers to make a down payment followed by additional payments until the item is paid for in full.

Kent Fong, a 45-year-old computer lab technician from Sunnyvale, has used layaways often over the years, in part as a way to stretch his buying power, as well as to lock in a good price on things like gold coins with prices that fluctuate daily. But one of the main reason he likes it is because he hates the alternative — putting purchases on credit cards.

“When you don’t really have the money to buy something, putting it on layaway forces you to budget,” he says. “Use a credit card and you’ve already bought it and are enjoying it and you don’t think as much about making the money to pay it off. So layaway is safer. This country wouldn’t be in the credit-card mess we’re in if we’d all just use layaway.”

Layaway programs are typically aimed at a small percentage of shoppers. An estimated 7 percent of shoppers planned to use layaway for holiday purchases, according to a December 2008 survey from Consumer Reports. The survey, which allowed multiple responses to questions, found that 76 percent planned to use cash, 51 percent debit cards and 50 percent credit cards.

And not every store offers the option, including Kohl’s, JC Penney, Ross Stores, Target and Wal-Mart.

Although layaways represent a small segment of the brick-and-mortar retail world, they have found a growing online presence with the emergence of Web sites that see the practice as a growth opportunity.

Consumer electronics, appliances, toys and games are sold at www.lay-away.com, which charges no service fees to consumers because revenues come from sales commissions paid by retailers. A $35 fee applies on canceled orders.

Consumers who go to www.elayaway.com are charged a 1.9 percent transaction fee on merchandise purchased from retail partners that include Apple, Bass Pro Shops, Best Buy and Home Depot. Cancellation fees are $25, or 10 percent of the cost of the merchandise, whichever is less.

Before using layaway, shoppers should read and understand the contract and ask about cancellation fees, said Susan Grant, director of consumer protection at the Consumer Federation of America. Also, they should check on a retailer’s policy for refunding payments when a cancellation occurs.

“Layaway can be a cost-effective way of making a purchase in light of your budget. … In many respects, layaway is better than putting something on your credit card if you are not able pay your credit charge all at once,” Grant said. “Ultimately, you have to figure out what is the most economical way to make the purchase. … The best solution is to save, so that when you need to make the purchase, you’ve got the money to do it.”

Not all shoppers are sold. “I never use layaway. I prefer cash,” Patricia Medina said as she browsed the shelves of the Pleasant Hill Toys R Us, which unveiled a layaway program in October for big-ticket items such as bicycles, dollhouses and karaoke machines.

It also doesn’t allow impulse shopping, Medina said. “You see something you want, you want to buy it that moment,” she said.

For shop owners like Vince Falcone, owner of Falcone Jewelry & Coins in Willow Glen, layaway allows him to provide his best clients flexibility in stretching out payments to better coincide with their paychecks.

“We do layaway for both coins and jewelry and keep the items in a hold box that’s overflowing these days because people like to make little payments here and there,” he says. “I’d say the use of layaways is up 10 to 20 percent with the recession, because money’s tighter and people don’t have the discretionary income when their employers are laying people off or cutting back on salaries.”

In the early 1990s Sears did away with its layaway program as more and more customers turned to credit cards. Sears brought back it back this year in response to some customers seeing reduced credit lines, said company spokeswoman Shannelle Armstrong.

“It provides a payment option for consumers who would like to pay over time,” Armstrong said. “We’ve had an overwhelming positive response from shoppers.”

Kmart, which acquired Sears in a merger several years ago, has always offered a layaway program.

Armstrong said the vast majority of Kmart shoppers who use layaways make all the required payments to receive the merchandise but declined to give a specific percentage, saying it was proprietary information.

Wal-Mart stopped offering layaways in 2006 after determining it was too expensive to operate and that not having it made it easier to keep prices low for customers, said Wal-Mart spokeswoman Kelly Cheeseman.

Back in the 1960s and 1970s, layaways were much more widespread in the retail world because credit cards were not that common. The resurgence of layaway today is tied to tighter credit, said Kit Yarrow, psychology department chair and professor of psychology and business at Golden Gate University in San Francisco

“It’s not as much a change in consumer preference as it is a response to not being able to get credit. It went from basically dead to very alive overnight when credit dried up,” she said.

Mercury News staff writer Pat May contributed to this story.

layaway policies

Non-
refund-
able
service Down Maximum Cancellation
Store fee payment Payment time Fee
Burlington $5 20% 60 days $10
Coat
Factory

Kmart $5 15%/$10* 8 weeks $10
Marshalls** $5 10% 30 days none

Sears $5 20%/$15* 8 weeks $10
T.J. Maxx** $5 10% 30 days none

Toys R Us $10 20% No later $5
than Dec. 6

Service and cancellation fees listed above apply to California. Other states may have different fees.
* whichever is less
** Layaway offered in some but not all Marshalls and T.J. Maxx stores.

layaway policies

Store
Burlington Coat Factory
Kmart
Marshalls**
Sears
T.J. Maxx**
Toys “R” Us

Non-Refundable Service Fee

$5

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