Tuesday, October 28, 2008

More on Layaway


Before manufacturing switched to the J.I.T. (Just In Time) operation, they used to warehouse a lot of goods waiting for orders to ship. Retailers used to have warehouses too, then with the increase in technology and speedier shipping, the need to store goods in "the back room" decreased.

Looks like layaway is making a comeback. Can you offer it it your business?

Layaway is Making a Comeback

Layaway, a payment practice that was made popular during the Great Depression but nearly became extinct due to the instant gratification of credit cards, is back in fashion thanks to the credit crunch.

Only a handful of national retailers still let consumers put purchases aside until they have paid for them in full. Many of those companies -- which include TJX Cos., parent of TJ Maxx and Marshalls; Burlington Coat Factory Warehouse Corp.; and Kmart, part of Sears Holdings Corp. -- report that demand for layaway is stronger than it has been in years.

With credit-card companies tightening limits and offering fewer specialty card promotions amid the continuing credit crisis, many consumers may not be able to tap credit cards as much this holiday season, experts predict. Meanwhile, retailers report that many customers spooked by the slumping economy are either already saddled with debt or determined not to be, all of which is making layaway are more enticing option.

Demand has surged so much at Kmart, in fact, that the discount retailer decided to tout its commitment to layaway as the centerpiece of a national advertising campaign.

The ads, which feature an animated Kmart light bulb known as Mr. Bluelight, began on radio and television this month and promote layaway as an affordable way for families to finance the holiday season.

"While not sexy, layaway became the big idea for Kmart these holidays," said Mark Snyder, Kmart's chief marketing officer. "It is all about our shopper being able to put the hottest gifts that their family wants on layaway. They can get them early and still get them out for Christmas."

Kmart also has been using a celebrity pitchwoman to promote the virtues of layaway: Kate Gosselin of "Jon & Kate Plus 8," the TLC reality-TV show about a couple raising sextuplets and twins. Ms. Gosselin recently told the TV program "Showcase Minnesota" that layaway allows her to hide presents at the store, "so that my 16 searching little eyes don't find them."

Layaway plans aren't free -- most stores charge a fee for setting aside the merchandise, and ask for a down payment. Kmart requires customers to pay a $5 service fee and a $10 cancellation fee upfront, or put down 10 percent of the item's cost, whichever is greater. Customers must make biweekly payments over eight weeks to pay the balance. In case of default, the item goes back into stock and the customer receives a refund, minus the $15.

Several layaway Web sites sprung up earlier this decade to fill the void left after Wal-Mart Stores Inc. and other major retailers discontinued the seemingly outmoded service -- and they are also reporting a big bump in business. ELayaway.com, which offers iPods, Hewlett-Packard laptops and clothes from the Gap on virtual layaway for a 1.9 percent fee of the cost of the item plus taxes, said traffic has increased 91 percent over last year. Customers can choose eLayaway as a payment option on affiliated Web sites or can shop at www.eLayaway.com, and receive the item in the mail once the payments are made in full.

Many of the site's customers are victims of the subprime-mortgage mess or simply have bad credit, said Michael Bilello, eLayaway's senior vice president of business development. He said that five major big-box retailers had contacted the company in recent weeks about adding an eLayaway payment option to their Web sites or putting eLayaway kiosks in stores.

"Business is booming," said Mr. Bilello, adding that the company noticed a surge in interest this summer during a promotion called "Christmas in July."

"It's the consumer credit crunch that's driving this," said Mr. Bilello. "Merchants are finally figuring out that when you tap people out on their credit cards, they can't consume the way they did. That's all coming home to roost right now."

John Pace, a Connecticut audio-equipment salesman, purchased a diamond engagement ring he plans to give to his girlfriend later this year from a jewelry site that featured eLayaway.com as a payment method. He also used the service to buy some Callaway golf clubs to send as Christmas presents, as well as a few clubs for himself.

"I remember growing up with layaway, and it seemed like the fee was reasonable," said 41-year-old Mr. Pace. "Being in sales, I have good months and bad months, and this way I don't max out a credit card."

(Source: The Wall Street Journal, 10/22/08)

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