The no-muss, no-fuss payment plan — layaway — may be making a modest comeback this year to entice consumers back to shop for Christmas gifts despite tighter credit and slumping retail sales.
Sears will reintroduce it today for the first time in 19 years. Kmart, which also is owned by Sears Holdings Corp., has been highlighting layaway for the first time in its TV commercials this year. Burlington Coat Factory has noticed an increase in layaway purchases as well.
And Goody's Family Clothing plans to ramp up its television and print advertising by mentioning it prominently.
Although it may be more familiar to grandparents than to their grandchildren, layaway is a payment plan in which customers make a down payment to reserve merchandise and pay it off periodically, usually for about 30 days for a small fee of about $3 or $5.
The concept fell out of favor among department stores in the past 20 years as credit cards became the payment method of choice, said Richard Giss, a retail consultant for Deloitte & Touche.
"People wanted their merchandise now,'' he said. "They didn't want to have to wait."
But as credit cards boost interest rates or reduce access to more consumers — and with many predicting the worst holiday sales season in 17 years — some retailers are offering layaway as a balm for cash-strapped shoppers.
Retailers that cater to middle- and lower-income families may get a sales edge this year if they offer layaway as a low-cost credit option, retail analysts said.
"I'm just running low on money," said 76-year-old Hollis A. Harris, who placed a $99.99 GPS system on layaway at the Donelson Pike Kmart in Nashville last week, a Christmas gift for his son. Harris said he relies on Social Security checks and his pension for income.
If it wasn't for Kmart's layaway offer, he probably wouldn't have been able to afford the gift, Harris said.
Learn to pay 'little by little'Alicia Maddox, a 29-year-old consumer, went to Kmart last week to pay $31 toward her $173.58 layaway bill.
Maddox is using layaway to buy Christmas presents for her children, including a Hannah Montana calendar for her 8-year-old daughter and a toy guitar for her 1-year-old son.
"I can pay little by little and use the rest of my money for what I need it for — to pay my bills,'' she said.
Still, most big retailers don't offer layaway, with some saying the effort it takes to keep track of dozens of small payments from consumers and to keep merchandise on their shelves for a longer time period is too much trouble.
Stores don't like the hassleBest Buy doesn't have layaway. Neither do most of the big department stores such as Dillard's or Macy's. Wal-Mart did away with its layaway program in 2006.
It was a "pain in the neck" for retailers, Giss said. They had to create a special payment system, keep track of many small payments and devote storage areas to layaway in an age when the typical retailer prefers to keep as little inventory as possible in stock to cut costs.
Wal-Mart's business model is to get merchandise from the truck to the shelf to consumers' homes as quickly as possible, Giss said. Plus, many retailers want to encourage customers to use in-store credit cards to capture a larger share of the shopper's wallet.
But retailers that use layaway get the benefit of repeat visits from consumers as they make payments and pick up their merchandise. That, in turn, can lead to more sales and give a store owner a competitive edge.
"Retailers want to do whatever they can to bring people in," said George Rosenbaum, founder of retail consultants Leo J. Shapiro & Associates in Chicago. "I think the reason you're seeing an emphasis on it now is it helps build traffic. You can't sell to someone who isn't here."
Plans promotedSears announced last week it would reintroduce layaway, something that had been relegated to the jewelry department since 1989. Now the company will offer it throughout much of the store, excluding door-buster sales, automotive, and large appliances such as refrigerators, among a handful of exceptions.
Just as at Kmart, there is a $5 layaway fee and a $10 fee if the customer cancels a purchase.
Last year, Kmart's iconic light bulb, Mr. Bluelight, was the focus of its ads. This year, it's the layaway plan.
Paul Gourley, a soft-lines manager at the Donelson Pike Kmart, said more space was allocated for layaway this year — the first time that's happened in his 10 years at the store.
Already, 2,500 square feet of upstairs storage space is filled with items ranging from infant clothes to Crockpots.
Gourley estimates the store will make $50,000 more in layaway sales this holiday season than it did a year ago.
Rhonda Jackson, 43, said hearing radio advertisements from Kmart pushed her to try the store's layaway program for the first time last week. Jackson placed $140 worth of clothes — a Christmas present for herself — on layaway.
"It will help stretch my money a little longer," said Jackson, who delivers newspapers to stores for a living.
The Antioch resident said that a few years ago she began trying to pay for most purchases in cash to avoid interest charges on her credit card.
"The economy started getting tighter," Jackson said. "I set an amount of money and I stick to it."
Tony Schofield, manager of the Electronic Express store on Nolensville Road, said he has noticed more calls about layaway this year, although it makes up less than 5 percent of the store's sales.
A Burlington Coat Factory spokeswoman said layaway sales are up slightly this year; and some TJ Maxx and Marshalls stores also offer the perk.
Elayaway.com, a payment processor that sells goods for Gap, Bass Pro Shops and Adidas, among others, said it has signed up more than 15,000 out of its 75,000 customer members during the past 15 days.
The company charges no interest but has a flat 1.9 percent transaction fee and, if consumers cancel their purchases, a $25 fee. The company's target demographic is a household that makes less than $60,000 per year and has two or three children.
"Customers are taking themselves away from credit card use,'' Rosenbaum said. "For many customers, it has become a no-no, especially store credit cards."
"This is Dave Ramsey country,'' said 57-year-old Kathy Morse of Brentwood, referring to the popular Nashville radio talk show host who encourages listeners to wipe away debt and live within their means. "I think he has influenced a lot of people around here."
Tina Herring, a 39-year-old secretary, said she wouldn't use a credit card for Christmas shopping at all. This year she placed roughly $250 worth of gifts on layaway.
"Interest rates are too high," Herring said. "It's easy to get in trouble with them."
America's Research Group surveyed consumers this fall and found 40 percent plan to spend less this Christmas than last year. The telephone survey of 1,000 people in early November found that 53 percent have higher credit card balances than last year and 73 percent of those will spend less on Christmas gifts as a result.
"The consumer credit crunch is causing consumers to seek non-credit-based purchasing options,'' said Michael Bilello, senior vice president of business development for Elayaway.com. "Americans have always been familiar with layaway. It wasn't the consumers who got rid of it. It was the retailers."
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