Are Layaway Plans Poised for a Comeback?

Smart Planning, Goal Setting Can Ease Budget Burdens This Holiday Season

Date: November 23, 2009

Contact: Paul Golden 303-224-3514, [email protected]

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]

GREENWOOD VILLAGE, COLORADO—Buying on layaway, that thrifty practice your parents and grandparents knew so well, still has a pulse in the marketplace. And as the holiday shopping season shifts into high gear on Black Friday, shoppers of all income levels are considering the option.

Manage Your Spending This Holiday Season

  • Stick to a budget. List all of the gifts and decorations you plan to buy, the parties you will attend and the travel expenses you anticipate. Do not exceed your preset limits.
  • Make a list and check it twice. List all family members, friends and co-workers for whom you plan to buy gifts. Be flexible in cutting the list to accommodate your budget if needed.
  • Comparison shop. Consider online shopping to get the best deals, but remember to figure in shipping costs. Check sale ads regularly and be selective in your shopping. Once you have purchased a gift for someone, cross them off your list. Avoid adding last-minute impulse items just to make your gift seem more meaningful.
  • Make concessions. To maintain your budget, you may have to cut down your list of gift recipients. You also may have to be selective in what parties you will attend. Many people will add substantial costs with other activities, such as wrapping gifts and sending holiday cards. Avoid expensive wrapping and consider sending a letter rather than individual cards.
  • Begin again in 2010.  Although it’s a little late this year, remember, holiday spending is a recurring expense. You should establish a savings account that you regularly contribute to throughout the year. Ask your bank about setting up a designated account that money can be transferred to automatically.

According to the National Retail Federation, the number of consumers who use credit cards for seasonal costs is expected to be down 10 percent this year. Of course, saving for holiday expenses throughout the entire year is still the best plan. But, if credit is not an option because your limits have been lowered, you are overextended or you just don’t want to pay on debt into 2010 and beyond, then layaway might offer the perfect solution.

"The recession and credit crunch have made everybody cautious,” says Ted Beck, president and CEO of the National Endowment for Financial Education (NEFE). “Even people with solid credit don’t want to risk incurring more debt than necessary, especially this holiday shopping season.”

A New Kind of Layaway Shopper

It isn’t surprising that consumers with modest incomes and with little or poor credit are shopping on layaway. But even those in good financial shape and without credit worries are using the option.

"A sizable group of our layaway users are people who just like the convenience of it,” says Tom Aiello, vice president of public relations for Kmart and its parent company, Sears Holdings Corp.

Holiday shoppers put toys on layaway in case the items are out of stock later during the season. They’ll avoid the Black Friday crowds. And the risk is minimal; the costs are low (perhaps just $5) and, if need be, they can get their money back for a nominal cancellation fee. They also will maintain good financial discipline, because nothing comes to the house until it’s paid off.

“As with most things financial, diligence is key,” adds Beck. “It is the responsibility of the consumer to understand all of the terms and policies of the program. But buying on layaway can provide a positive teachable moment in terms of goal setting. With only a month to go in the shopping season there is strong motivation for consumers to make the payments they've budgeted for, and it could prevent overspending on those last-minute impulse buys.”

A Smart, But Scarce, Option

Kmart—which is aggressively marketing its layaway option this holiday season—always has had a layaway program, and Sears ran a campaign promoting layaway in 2008 after the company had previously eliminated its program.

“What we didn’t expect was such a strong outpouring from Sears customers, who wanted layaway,” recalls Aiello.

That groundswell of demand was so big last year that Sears brought layaway back after a four-year hiatus. Not only was it a huge holiday shopping success, but it also enjoyed brisk patronage throughout 2009.

“Like all retail, we see sales increase sharply during the holiday season,” Aiello says. “But the customer response in favor of the layaway option is increasing, and the response is positive.”

When credit was easy to come by and economic times were good, layaway wasn’t a compelling option. But the worst recession since the Great Depression has created an opportunity for alternative payment programs, according to Sergio Pinon, founder and chief marketing officer of eLayaway.com, a leading online layaway shopping site.

“[The recession] has put a lot of strain on consumers, and that strain eventually found its way to the merchants, who said ‘Gosh, fewer people are buying. Our busiest quarter is coming up, the one that saves the whole year. Are we going to be okay? How do we stimulate people to buy?’

“So layaway programs, having been born from a similar situation during the Great Depression, have kind of found their way back in,” Pinon says.

Despite revived interest in layaway, few name-brand chains offer it. Wal-Mart did away with layaway years ago, but stores such as Toys “R” Us, TJ Maxx, and Men’s Warehouse still have layaway plans available.

“You have to have the physical space at the store and the software and manpower support for something like this,” Aiello says.

Is Layaway Right For You?

Some retailers may be more sanguine about credit than others and want to steer their customers into their exclusive credit arrangements. But there is an opportunity for shoppers to make smart buys through layaway. Here’s what you should know:

  • Layaway is good for buying something you’ll need in the future—say four weeks from now—if you cannot pay for it up-front or do not want to use credit. A layaway plan allows you to make affordable regular payments to pay for goods.
  • For shoppers without savings or credit, layaway can be their best option. But before you proceed, first find out how much you’ll need for a down payment, the payment schedule to fulfill the layaway obligation, and how much each payment will be. If you buy $200 worth of presents for your children, make sure you can commit to paying off $50 each week.
  • Make a shopping list before you go to the store and be realistic in what you can afford to pay in full during the allotted time you have.
  • Make sure you understand the service fees and the store’s layaway cancellation and refund policies. At Sears and Kmart, for example, if you change your mind about the purchase, you’ll get a full refund on everything you’ve paid, minus the contract fee and a $10 cancellation fee.
  • When going to the store to make payments, go in and get out. Don’t browse and shop for more items. Impulse items can wreck your budget.
  • Keep accurate and detailed records of your layaway contract, your purchases and all payments that you make. Also, be diligent in watching sale ads. If you put something on layaway that subsequently goes on sale, you could arrange to get it at that sale price. For example, Sears and Kmart have a two-week price matching policy, which allows layaway customers to do just that.

The benefit of layaway is that it helps you afford any given purchase. But the real value is in building techniques to apply to your finances beyond the 2009 holiday season.

“Layaway is a viable option because it creates the financial discipline of staying within a budget,” says Beck. “It stresses the importance of planning ahead and setting financial goals. Retailers should make that point a key part of their layaway promotional campaigns.”

For tips on managing spending throughout the holidays and starting the New Year on the right foot with resources to better manage your money, visit www.smartaboutmoney.org.

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Manage Your Spending This Holiday Season

1) Stick to a budget. List all of the gifts and decorations you plan to buy, the parties you will attend and the travel expenses you anticipate. Do not exceed your preset limits.

2) Make a list and check it twice. List all family members, friends and co-workers for whom you plan to buy gifts. Be flexible in cutting the list to accommodate your budget if needed.

3) Comparison shop. Consider online shopping to get the best deals, but remember to figure in shipping costs. Check sale ads regularly and be selective in your shopping. Once you have purchased a gift for someone, cross them off your list. Avoid adding last-minute impulse items just to make your gift seem more meaningful.

4) Make concessions. To maintain your budget, you may have to cut down your list of gift recipients. You also may have to be selective in what parties you will attend. Many people will add substantial costs with other activities, such as wrapping gifts and sending holiday cards. Avoid expensive wrapping and consider sending a letter rather than individual cards.

5) Begin again in 2010. Although it’s a little late this year, remember, holiday spending is a recurring expense. You should establish a savings account that you regularly contribute to throughout the year. Ask your bank about setting up a designated account that money can be transferred to automatically.

Contacts

  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
    [email protected]

  • Patricia (Pat) Seaman

    Senior Director of Marketing and Communications

    Direct: 303-224-3538
    [email protected]