Hard Times Live On... Layaway Makes a Comeback (WMT, SHLD, TGT, BBY, TJX, LOW, DG, DLTR, FDO)

Back in the day, a layaway plan made sense for many consumers who did not have the full purchase price of an item but could pay regular small installments until the item was fully paid for. The store held onto the item until the last payment was made. Easy access to credit cards pretty much killed those layaway programs as consumers were willing — and able — to pay the interest charges for credit. Layaway plans are now popular again as consumers look for ways to save money — and not paying interest is one way to do that.

Wal-Mart Stores Inc. (NYSE: WMT) announced last month that it was re-instituting its layaway plan after a five-year break. Sears Holdings Corp. (NASDAQ: SHLD) Sears and Kmart stores, Target Corp. (NYSE: TGT), Best Buy Co. Inc. (NYSE: BBY), and The TJX Companies, Inc. (NYSE: TJX) TJ Maxx stores also offer layaway plans.

For many large retailers inventories have piled up and margins are threatened because retailers fear that they will have to take larger-than-planned markdowns to move their holiday inventory. Layaway plans at Kmart and Toys ‘R’ Us have helped boost sales through layaway programs, while Target has had success with a branded credit card that offers shoppers a 5% discount on items purchased at the store. Lowe’s Companies, Inc. (NYSE: LOW) has a similar discount credit card at its Lowe’s home improvement stores.

Some super-discounters like Dollar General Corp. (NYSE: DG) and Dollar Tree, Inc. (NASDAQ: DLTR) don’t offer layaway plans, but Family Dollar Stores, Inc. (NYSE: FDO) does.

There are even on-line layaway shops that offer everything from diamonds to fabrics. Payments are made by debiting customers’ bank accounts or by check.

Continuing high unemployment and stagnant wages are probably the biggest reason for the re-appearance of layaway plans. Credit tightening has left many consumers without access to credit cards or they prefer to conserve cash by avoiding high credit card interest rates. Many layaway plans include a small one-time fee for the service, but that’s always lower than 10%+ credit card interest rates.

The re-emergence of layaway plans reflects the desire for retailers to make it as easy as possible for every consumer to make a purchase and the desire among consumers to manage their own cash flows. The programs will last as long as consumer credit is expensive and hard to get, then they’ll fade away until the next time.

Paul Ausick