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 starts shifting into high gear, shoppers of all income levels are considering the option. The National Retail Federation expects consumer spending to be up more than 2 percent in 2010 to $447 billion dollars. But for shoppers who don't have access to credit, either because their limits have been lowered, they are overextended or they just don't want to pay on debt into 2011 and beyond, then layaway might offer the perfect solution.
"Saving for holiday expenses throughout the entire year is still the best plan," said Ted Beck, president and CEO of the National Endowment for Financial Education. "But the recession and credit crunch have made everybody cautious. Even people with solid credit don't want to risk incurring more debt than necessary, especially during the 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," said Tom Aiello, vice president of public relations for Kmart and its parent company, Sears Holdings Corp.
Holiday shoppers put electronics, toys and clothes on layaway in case the items are out of stock later during the season. They will 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. It provides strong motivation for consumers to make the payments they have budgeted for, and it could prevent overspending on those last-minute impulse buys."
A smart, scarce optionWhen 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 Kmart, Sears, 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 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 $300 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.
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 2010 holiday season.