Retailers Revive Layaway to Entice Budget-Conscious Shoppers

Desperate for a much-needed sales boost this year, retailers are anxiously waiting for the holiday shopping season. Back-to-school shopping was lackluster at best, and many retailers have stepped up efforts to lure holiday shoppers early this year.

Indeed, tepid sales projections have retailers scrambling for customers this holiday season, leading to the return of layaway plans.

Before the birth of the credit card, retailers offered shoppers the option to put items on layaway, which allows consumers to make incremental payments without interest charges. Stores hold onto layaway items until shoppers complete the payment process.

But layaway made a return during the recession. Retailers enticed holiday shoppers with the possibility of saving money that normally would go toward paying credit card interest. Layaway once again has emerged in retailers’ holiday plans as consumers continue to look for ways to save money.

“These days, it speaks directly to the fact that either customers are requesting layaway or retailers expect people will use it,” Kathy Grannis, a spokeswoman for the National Retail Federation, said of layaway’s comeback. “It is not something the retailer would do if there isn’t consumer demand.”

“Layaway helps people stay on track with their budget, especially during the holidays when consumers try to keep their credit card bills low. For some, credit is never an option,” Grannis added.

For the first time since 2005, Wal-Mart Stores Inc. (NYSE:WMT) will offer a layaway plan. Wal-Mart, the world’s biggest retailer, has seen its sales decline over the last two years.

Toys “R” Us Inc., which launched a layaway program in 2009, recently announced it is broadening its layaway plan to include most items in its stores.

Sears Holdings Corp.’s (NASDAQ:SHLD) Sears and Kmart have gone as far as christening the holiday season less than one month after Labor Day, dubbing the week of Oct. 3 “National Layaway Week.” The two stores offer both in-store and online layaway plans.

Best Buy (NYSE:BBY) and Target Corp. (NYSE:TGT) also will have layaway options for customers, and retailers such as Target and Lowe’s Corp. (NYSE:LOW) offer store-branded credit cards that give shoppers discounts on their entire purchases.

Discounted purchases have long been a feature of credit cards offered directly from retailers. Macy’s Inc. (NYSE:M) offers additional discounts when one of its store-branded credit cards is used. Best Buy sends coupons to card owners when they reach a certain level of spending. The electronics retailer also currently offers no interest payments for large purchases made with its credit card, as long as the purchase is paid in full within 18 months.

Steep discounts were a staple during the months following the 2008 stock market collapse. Discounts this holiday season are not expected to be as significant, but enough to entice budget-conscious shoppers.

“We are expecting retailers to be very promotional this year, but they will not stray too much from what they have planned,” Grannis said.

Retailers were left with large inventories in 2008, something that is a concern when consumer sentiment changes shortly before the holidays and after stores place orders. This year, most retailers would have begun making orders around the time when consumer confidence and the stock market started to sink.

“We saw panic promotions as retailers were looking to move merchandise,” Grannis said, adding that the 2008 holiday season caught retailers off guard. “We were a little more confident before consumer sentiment changed this summer, but retailers now have a much better handle on how to manage expectations. They will probably be cautious with their inventories this year.”

Wal-Mart’s Sam’s Club is in a unique position as a members-only retailer. Looking to increase foot traffic during the holidays, the store said it is offering a seasonal 15-week membership for $15. While Wal-Mart is experiencing a period of little growth, Sam’s Club reported a same-store sales increase of 5% in the second quarter. Sales at U.S. Wal-Mart stores fell 0.9%.

In the case of Sears and Kmart, layaway allows stores to begin holiday promotions early and entice customers to start their holiday shopping. About 40% of consumers begin shopping for the holidays before Halloween, Grannis said, and layaway is an additional option for these shoppers.

“It’s usually not hard to get people in the store around the holidays, but more often people are looking for retailers that have other things that are valuable, such as return policies. Layaway is one of those things that will entice some consumers,” she said.