Layaway: free credit without plastic good business in bad times

Posted Dec. 14, 2008, at 6:54 p.m.

Earlier this year, when all those troubling economic signs pointed to a tough Christmas shopping season, the nation’s retailers did a few things:

• They scaled back their ordering to avoid some big inventories.

• They planned on running their after-holiday sales early.

• They brought back a marketing idea from the 1950s, the layaway plan.

Layaway got its start when credit was something you had at your neighborhood store instead of a plastic card you kept in your wallet. At Osgood’s clothing store in Lincoln, a former employee (and current CONTACT volunteer) remembers youngsters from Aroostook County making a first payment on clothes in July and August. When they received their wages from the potato harvest, they paid the balance and the clothes were theirs.

Layaway lets you pick out an item you wanted to buy but couldn’t afford to pay for and put a partial payment down. The retailer holds your purchase until you can pay for it within a set period of time, often 30 days.

The idea caught on 50 years ago, and it’s making a major comeback. It’s appealing because it guarantees you’ll get the item you want at an advertised price, plus a small fee. When it’s paid for, it’s yours… and there’s no interest to pile up on those deferred payments many consumers face when running up Christmas bills on their credit cards.

That may be the biggest reason the layaway plan is finding such renewed popularity. People are rightly nervous about using their credit cards as the economy continues to slide. They’ve heard the stories about credit limits being lowered (often for reasons beyond their control), and they worry about exceeding their limits.

The layaway plan lets them set aside a wanted or needed item, make a partial payment, and have a little breathing room to pay off the balance. The time frame to complete the purchase is set, and the fee for using layaway is often the same for large and small buys. Everything is known in advance.

Kmart is hoping the simplicity of the idea resonates with consumers. The chain is making the layaway plan a major part of its holiday season advertising. It’s giving customers eight weeks after they make their selections to make twice-monthly payments and then take home their purchase.

For some time, Kmart was alone among major chains in keeping the idea alive. Recently Burlington Coat Factory, TJ Maxx, Marshall’s and Goody’s Family Clothing have added layaway plans. Wal-Mart and Target both discontinued layaway in favor of store credit cards; neither plans to bring layaway back.

Companies that offer layaway are essentially offering customers free credit. In tough economic times, that’s worth considering. It may also be worth a try just to prove to oneself that instant gratification isn’t everything.

Retailers will do whatever they have to, to bring shoppers back into their stores. If customers want layaway, this may be the season for them to send that message.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for more information, write: Consumer Forum, P.O. Box 486, Brewer 04412, or e-mail contacexdir@live.com.

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