Retail: Shoppers re-embrace the logic of layaway

Credit may still be king. But a growing number of debt-wary shoppers and retailers are embracing the logic of layaway.

In the wake of the financial crisis, consumers have done a lot of soul-searching about their spending habits — cutting back on credit cards, trying harder to save, and being more careful where they invest. While few would argue such steps weren’t needed, these tried-and-true measures pose a real challenge for retailers. If people are thinking twice about buying and spending less when they do, how do stores keep the cash registers humming and the turnstiles turning?

In a growing number of cases, the answer is to counter one traditional tactic with another. Enter layaway. For those too young to remember it, layaway — popularized in the Great Depression when unemployment hit 30% — is the opposite of credit. While the latter allows people to take an item home today and pay for it tomorrow (or next year), shoppers using layaway pay for an item in instalments over a fixed period of time. There’s no interest charges and usually just a small fee. Once they’re done, they can pick it up from the store hassle- and debt-free. It’s a method of purchasing that went away with the rise of credit cards and has only begun to resurface in a big way this year — especially in U.S. stores like Sears, Kmart and Toys “R” Us.

Sears actually led the charge last holiday season. While the re-introduction of layaway wasn’t enough to salvage a weak year overall, customer response to the program was so positive that Sears decided to expand the program to run year-round. The concept is also proving very popular with online shoppers. Florida-based, which launched in 2005, saw new membership registrations increasing 936% in 2008 alone. It now has more than 75,000 members, who use the site to shop at more than 700 merchants, including name-brand retailers like Nike, the Home Depot and Best Buy. Members can also use layaway to buy tickets for sports events and boat cruises.

Small online Canadian retailers have also set up layaway options. Tanya Bell, owner of based in Brampton, Ont., says layaway works well for her customers, allowing them to purchase cloth diapers and baby accessories online. She says the service helps her customers control their spending, and many are able to pay off their purchases well before their payment due date.

Even so, big retailers in Canada have been slower to jump on the bandwagon — in part, because the recession here was not as severe as in the U.S., and also because their customers seem content with other promotions. At Sears Canada, for instance, spokesperson Vince Power says customers who make purchases with a Sears credit card can take advantage of an interest-free, deferred-payment plan. “Taking a big-ticket purchase item home right away is a big plus, especially in home electronics,” says Power. “If you have to pay it off for six months, the technology could have changed.” Likewise, the Hudson’s Bay Co., which bought all the Canadian Kmarts and turned them into Zellers stores in 1998, says it has no plans to introduce the payment plan.

The biggest retailer of them all, Wal-Mart, falls somewhere in the middle. It abandoned layaway in the U.S. in 2006, citing a lack of space to store all the items. Plus, says Susan Schutta, director of corporate affairs at Wal-Mart Canada, their merchandise just moves too quickly. “It’s better to not have the program at all than have a program where only a certain number of people can buy something and then you run out of it. It’s not fair.” Even so, a few large Wal-Marts in Canada still offer the service. Schutta says the final call is up to regional and store managers. And while plans are constantly under review, there’sno pressure to can the service if it’s working.