Credit crunch prompts a comeback for layaway

Star Tribune (Minneapolis) (MCT) - Ella Stewart's shopping cart overflowed with toys and games as she wheeled it and her animated 1-year-old daughter, Allonnah, to the Kmart layaway desk this month.

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Stewart usually shops at the Wal-Mart store near her home in north Minneapolis, but said she trekked across town to Kmart because Wal-Mart no longer offers the service.

"Layaway helps me budget better," she said, unloading a Dora the Explorer tricycle, Campout Adventure play set and some squeezable, talking dolls. "It makes it a lot easier to get the things I want to get my family for Christmas."

With credit tight and consumers leery of taking on debt, some retailers are dusting off the once-popular pay-as-you-go option. Kmart has made layaway the centerpiece of a national ad campaign it launched a few weeks ago. Sears, whose parent company also owns Kmart, just announced last week that it was brining layaway back. Best Buy Co. Inc. is testing it at a handful of stores in the Midwest. Even Oprah is calling for a resurgence.

"Now that credit isn't readily available, the consumer is saying, 'I'd love to buy it but I don't have the money,'" said Marshal Cohen, chief retail analyst for market researcher NPD Group.

"So retailers are adding layaway to the equation. They're saying, 'I can tie you up as a consumer now, I can solve your savings problem and help you start your holiday shopping earlier, and I don't have to worry about chasing you later.'"

Layaway grew out of the Great Depression, where consumers could set aside goods they wanted and make regular installments until the debt was paid and they got to take the goods home.

The concept got shoved to the back of the storeroom in the 1980s, as easy credit begot a get-it-now, pay-later consumer culture. In recent years, retailers have put gift cards and their own profitable credit card rewards programs at center stage, turning layaway into an expensive, space-hogging, antiquated service.

ShopKo and Circuit City Stores Inc. dumped layaway about four years ago. Wal-Mart Stores Inc. discontinued the bulk of its service in 2006 because it was deemed too costly, though it still offers layaway for fine jewelry. Wal-Mart won't resurrect the service for the holidays, in order to keep prices "as low as they can go," spokeswoman Ashley Hardie said in a prepared statement.

But now, for retailers who don't want to give up the staff or space for layaway, there's a new trend afoot. They're taking it online.

More than 1,200 merchants have turned to eLayaway, including Brookstone, Gap, Dell, HP, Apple Store and Bass Pro Shops. Two as-yet unnamed big-box retailers will become part of eLayaway's virtual mall "very soon," said Michael Bilello, senior vice-president of business development of the Tallahassee, Fla.-based technology company.

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Like traditional in-store layaways _ which have fees and cancellation penalties _ customers of eLayaway pay a 1.9 percent transaction charge. Shoppers can stretch payments for three months to a year. Payments are automatically withdrawn electronically, and once the item is paid off, it's shipped to the customer's home.

Consumer interest in eLayaway has grown exponentially since its launch in 2006, Bilello said, with transactions jumping 91 percent from a year ago. About 75,000 shoppers have used the eLayaway.com site not only to buy computers and overcoats, but also to pay for cruises, mattresses, knee-replacement surgery _ even hair transplants.

Best Buy began looking at adding layaway to ease the stress of its credit-crunched customers, said Mike Vitelli, executive vice president of the customer operating group. The retailer is testing the concept in only a few stores, because it's not yet sure it will fly in an industry where technology changes quickly.

Traditional retailers that never let go of layaway say the specter of a lean holiday season is helping stage a comeback of sorts.

Burlington Coat Factory, which has been offering the service since 1972, said layaway sales are up 2.6 percent this year.

Kmart, part of Sears Holdings Corp., has offered layaway for more than 40 years. But the struggling retailer is making its boldest pitch ever to try to turn layaway into a competitive advantage to steal cash-strapped shoppers away from Wal-Mart, Target or other deep-discounters this holiday season.

Stewart falls into that camp. She gets paid weekly at her job at Macy's, and plans to put a little of her paycheck down on the $260 purchase, though Kmart requires payments only every two weeks.

Then she'll be back for the next item on her layaway list: an Xbox 360 videogame for her 9-year-old son.

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© 2008, Star Tribune (Minneapolis)