By Sheryl Smolkin
Read this article and comments at Moneyville.ca
Wal-Mart in the U.S. thinks that reviving its layaway program is one way to boost holiday sales and help low-income shoppers squeezed by high unemployment and rising costs.
Retail establishments initially created layaway programs during the Great Depression when most customers could not afford to pay the full amount up front. They largely became a thing of the past with economic prosperity and readily accessible credit cards. However, when the markets went south in 2007/2008, Sears and other U.S. merchants such as Toys R Us and Kmart reintroduced this shopping alternative.
Due to increased cost and lower consumer demand, Wal-Mart phased out its layaway program (except for fine jewellery) in late 2006. However, the company thinks it will be able to better manage costs under the new program, which will be limited to toys and electronics costing $15 or more with a minimum total layaway purchase of $50. There will also be a $5 non-refundable service fee and a $10 cancellation charge for orders not picked up by December 16th or cancelled by the customer.
Unlike the use of credit cards, the advantage of layaway has generally been that interest is not charged and participants do not need a good credit score to participate. The downside of course is that like Wal-Mart, stores typically charge a nominal fee when items are put on layaway and there may be an additional fee if the buyer misses a payment or fails to pay off the merchandise.
Some stores also allow purchasers to make layaway payments with a credit card, which largely negates the benefit of “delayed gratification” on people’s spending habits, when credit card interest and the layaway fee are factored in.
While I’m not surprised that layaway plans were popular when largely unemployed housewives didn’t have credit or credit cards, I’m a little puzzled that they are resurfacing now in an era of “just in time” merchandising. I find it hard to believe that there is enough potential profit to be made that big box stores can afford to allocate staff, systems and space while customers pay for their purchases over a period of weeks or months.
And from a consumer perspective, it seems to me that layaway plans are really just a shell game. Instead of buying now and paying later, why not save up the money first and simply pay cash?
Or if everything old is new again, maybe it’s time to bring back a more politically correct iteration of “Christmas clubs” that also were popular during the Great Depression. These programs encouraged bank customers to deposit a set amount of money each week into a special savings account, and receive the money back at the end of the year for Christmas shopping.
Wal-Mart’s new layaway option comes at a time when it is trying to reverse nine quarters of revenue declines in U.S. stores open at least a year. The company says if the program is successful, it may be extended beyond the holiday season. Wal-Mart Canada officials have confirmed that there are no plans to introduce layaway plans in this country.