Why Stores and Shoppers Alike Are Embracing Layaway

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Just a few years ago, layaway seemed near death. The old-fashioned payment program had fallen out of favor with the vast majority of shoppers, and only a few retailers thought layaway was worth the time and hassle to keep it alive. Suddenly, though, major retail chains are battling it out for layaway program supremacy. What happened? And given how heated the competition has become for layaway shoppers, does it make more sense than in the past for consumers to consider layaway?

As USA Today and others have reported, Kmart and Sears announced that they are dropping all layaway fees year-round. In the past, shoppers usually paid a $5 service fee to put something on an eight-week layaway contract, or $10 for a 12-week layaway contract. Going forward, there are no such fees, though there is a $10 penalty charged if the layaway purchase is cancelled.

The move comes within days of other retailers tossing around increasingly tempting layaway terms: First Walmart expanded its holiday layaway program by an extra month, then Toys R Us eliminated its layaway fees for purchases made through October, prompting Walmart to lower its layaway fees from $15 to $5—and that $5 is sorta refunded, given back to consumers in the form of a gift card once the layaway transaction is complete.

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Why are retailers duking it out over layaway, especially long before most consumers get even close to thinking about holiday shopping? Comprehensive stats on layaway are hard to come by, but consumers who put goods on layaway certainly represent a very small portion of all shoppers.

From the consumer perspective, in today’s age there would seem to be no real reason for layaway. Except in the rare case of items selling out and becoming unavailable even via online sellers, the service that stores are offering with layaway is one that the consumer could easily execute himself, and he’d probably be better off doing so. Layaway is not much different than socking away money in a cookie jar until you have enough to pay in full, only instead of the cookie jar, it’s a store like Kmart of Walmart holding the money. Because the layaway shopper doesn’t get his hands on the merchandise right away, he’s essentially giving the store an interest-free loan until the goods are paid off.

The cookie jar method is obviously more convenient, because trips to your kitchen counter are easier than multiple trips to the strip mall. If you are simply unable to save this way, there’s a good argument to be made that you didn’t really want the item you were saving for all that badly.

Nonetheless, there’s a case to be made for why layaway works well, for retailers and (some) shoppers alike:

Why Layaway Is Good for Retailers
It gets shoppers to buy things they wouldn’t otherwise. Layaway plans were largely done away with in the mid-’00s because, in an era of easy credit, retailers saw the programs as unnecessary, as appealing only to a very small percentage of customers, and as more trouble—in the form of administrative costs and headaches—than they were worth. Things changed with the onset of the Great Recession and its continued fallout, a period when consumers are especially eager to avoid credit card spending. That is, if they actually have credit cards. Layaway offers stores the opportunity to sell to shoppers who wouldn’t or couldn’t have made the purchase otherwise. It’s no wonder that several retailers are dropping layaway fees: The fees were intended to cover some of the administrative costs, but surely some shoppers viewed them as a disincentive to making a purchase. Now that the fees have been removed or lowered, it is easier for the shopper to justify putting something on layaway. The net result for retailers is that more items are being purchased, and while the store would prefer all of the money for a purchase upfront, the layaway arrangement is better than no sale at all.

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Layaway brings in shoppers early and often. For a traditional purchase, a single store visit suffices. The typical layaway purchase, however, involves several trips to the store in order to make a series of payments. Each trip gives the store an opportunity to present new merchandise to the customer—who will face multiple impulse purchase temptations throughout the course of paying off his or her layaway account. Before it’s paid off, there’s a good chance that more and more merchandise will be added to the layaway account.

Stores have to keep up with the competition. Walmart didn’t want to concede layaway shoppers to Kmart. That’s why the world’s largest retailer reintroduced layaway last fall, and that’s why Toys R Us, Kmart, Walmart, and others are one-upping each other with better terms for layaway shoppers.

Why Layaway Is Good for Shoppers
There’s no risk of credit card debt or interest. A shopper who buys something with plastic, and who doesn’t have enough money in the bank to cover the bill, could be paying off the purchase for years, with plenty of interest charged on top of the price paid in the store. Layaway isn’t without risk—there are usually penalties for failing to complete the transaction—but the fees charged for canceling a layaway purchase will almost always be cheaper than the fees incurred while paying off the same purchase slowly with credit card minimum payments.

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Layaway fees are disappearing. Thanks to increased competition for layaway shoppers, the fees and policies for these programs have never been better for consumers. In a way, this is good and bad—good obviously because of smaller fees and fewer of them, but bad because (see above) it’s easier for shoppers to justify putting items on layaway that they probably would have otherwise left on the store shelf.

Maybe a “layaway angel” will cover your bill. Last year, a series of holiday season miracles took place at Kmarts and other stores around the country, with anonymous Secret Santas paying off the layaway accounts of total strangers. Will it happen again during the 2012 holiday season? We’ll have to wait and see. But if there’s any season when a prayer like this is going to be answered, it’s the Christmas season.

Considering all of the above, is layaway an ideal option for shoppers? Of course not! But perhaps, for many consumers, it represents the lesser of two evils. In the absence of strong self-discipline, layaway forces a shopper to be disciplined about saving and making payments for a purchase that, hopefully, brings some joy to the holiday season.

In his defense of layaway as a sensible option for shoppers last year, the New Yorker’s James Surowiecki wrote:

What the revival of layaway makes clear is that, while many shoppers are prone to spend what they don’t have on what they shouldn’t buy, they can also be sophisticated about their weakness, and savvy about finding ways to control it. They know that sometimes you have to have your hands tied in order to grab what you want.

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Ideally, shoppers would instead just stop buying things that they don’t have the money to buy. For that to happen in sizeable numbers, though, it would be quite a Christmas miracle.

Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.