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Layaway: Here today, gone tomorrow?

Walmart bends to customer pressure to offer bring program back

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Walmart's temporary new holiday layaway program might not last much longer than the wrapping paper on the gifts it will be used to purchase. While some consumers love layaway -- and begged the retail giant to bring back its program -- experts say the return of the old-fashioned financing option is just a sign of hard economic times.

"Companies like Walmart are saying, 'Hey, if not as much consumer credit is being given to our customer base, how can we still serve those customers without traditional lines of credit?" says Scott Testa, an independent retail consultant based in Pennsylvania. Walmart customer April Clark-Johnston, for example, signed an online petition along with more than 200,000 others to ask Walmart to bring back the financing option: "If I can't pay cash for it or put it on layaway," she wrote, "I usually do not purchase."

Walmart closed down its layaway program in 2006 -- except for fine jewelry -- but announced in late September that it will bring back the option, but only for the popular gift categories of toys and electronics between Oct. 17 and Dec. 16, 2011. So, temporarily, at least, Walmart has joined other retailers such as Sears, Kmart and Toys R Us that now offer layaway.

Walmart spokeswoman Tara Raddohl says payments made to Walmart in cash or a cash equivalent -- such as a check or debit card -- are on the rise, and have hit 85 percent this year. "Layaway is something our customers need more now than maybe they have needed it in the past," she says. (Story continues below.)

Top retailers offering layaway

Walmart

Eligible items – Toys and electronics (only between Oct. 17 and Dec. 16, 2011) and fine jewelry

Online layaway offered? No.

Is item physically separated from stock? – Yes.

Minimum item/total purchase cost – Total purchase must be over $50; each item at least $15

Service fee – $5

Down payment amount – 10 % of total purchase price

Payment amount – None specified, as long as item is paid in full by Dec. 16.

When is payment due – Item must be paid in full by Dec. 16

Frequency of payments – Not specified.

Grace period – No.

Total time frame – Depends when item is placed on layaway; program ends Dec. 16, 2011

Cancellation fee -- $10 (may vary by state)

When can you get your item – Any time through Dec. 16, 2011 at the store where the item as put on layaway.

 

 

Sears

Eligible items – Most items in store. (Exceptions include prescription drugs, plants and magazines.)

Online layaway offered? – Yes.

Is item physically separated from stock? – Yes.

Minimum item/total purchase cost – None.

Service fee – $5 for 8-week plan or $10 for 12-week plan

Down payment amount – $20 or 20 % (whichever is greater) for 8-week plan or $35 or 20 % (whichever is greater) for 12-week plan

Payment amount – 25% of balance due after down payment for 8-week plan; 16.7% of balance due after down payment for 12-week plan

Frequency of payments – Every two weeks.

Grace period – 7 days after missed payment; then item is returned to stock

Total time frame – 8 weeks. A 12-week plan also  is available for purchases of $400 or more, in-store only.

Cancellation charge -- $15 for 8-week plan; $25 for 12-week plan

When can you get your item – After making final payment, at the store where the item is being held. If it is being held offsite, you can schedule a delivery time or have item shipped.

 

Kmart

Eligible items – Most items in store.

Online layaway offered? – Yes.

Is item physically separated from stock? – Yes.

Minimum item/total purchase cost – None.

Service fee – $5 for 8-week plan or $10 for 12-week plan

Down payment amount – $20 or 10% (whichever is greater) for 8-week plan or $35
or 10% (whichever is greater) for 12-week plan

Payment amount – 25 % of balance due after down payment for 8-week plan; 16.7 % of balance due after down payment for 12-week plan

Frequency of payments – Every two weeks.

Grace period – 7 days after missed payment; then item is returned to stock

Total time frame – 8 weeks. A 12-week plan also is available for purchases of $300 or more, in-store only.

Cancellation charge -- $15 for 8-week plan; $25 for 12-week plan

When can you get your item – After making final payment, at store where layaway was initiated. Or, if item is being held offsite, you can schedule a delivery time or have item shipped.

 

Best Buy – Layaway only offered at some stores (check online to find participating stores: http://www.bestbuy.com/site/Layaway/BestBuy/pcmcat203100050023.c?id=pcmcat203100050023&DCMP=rdr0002207)

Eligible items – Almost all items. (Exceptions include clearance and discontinued items.) *Store issues a card to the customer, and payments accrue on the card until there is enough to pay for the item; the customer must have the card when making payments or picking up the item.

Online layaway offered? – No.

Is item physically separated from stock? – Yes.

Minimum item/total purchase cost – Minimum $250 total.

Service fee – 5%

Down payment amount – 25%

Payment amount – Either 25 % of remaining balance for 4-payment plan or 16.7 % of balance for six-payment plan.

Frequency of payments – Every two weeks.

Grace period – Not usually, but varies by store.

Total time frame – Maximum of 12 weeks (8 weeks for computers.)

Cancellation charge – No, but the 5 % service fee is not refunded.

When can you get your item – Can pick up item at store when paid in full.

 

 

T.J. Maxx – Layaway only offered by some stores (check store locator for hanger icon: http://www1.tjmaxx.com/tjx/search_results.aspx?postcode=10025 *policies might vary by store)

Eligible items – Most items in store.

Online layaway offered? – No.

Is item physically separated from stock? – Yes.

Minimum item/total purchase cost – None.

Service fee – $5

Down payment amount – $10 on purchases under $100; 10 % on items over $100

Payment amount – None specified.

Frequency of payments – None specified; must pay in full within 30 days.

Grace period – No.

Total timeframe – 30 days

Cancellation charge -- $5

When can you get your item –  After it is paid in full, at the store where layaway was initiated.

 

Marshalls (Layaway offered only in some stores. Check store locator for hanger icon: http://www1.marshallsonline.com/tjx/locator.asp Policies might vary by store.)

Eligible items – Most items in store. (No furniture or clearance items.)

Online layaway offered? – No.

Is item physically separated from stock? – Yes.

Minimum item/total purchase cost – None.

Service fee – $5

Down payment amount – 10%

Payment amount – None specified, but must be paid in full within 30 days.

Frequency of payments – None specified.

Grace period – No.

Total time frame – 30 days

Cancellation charge -- $5

When can you get your item – After paid in full at store where layaway was initiated.

 

Toys “R” Us / Babies “R” Us         
Eligible items – Some larger items, including bikes, indoor table games, baby gear. (See list: http://www.toysrus.com/helpdesk/index.jsp?display=payment&subdisplay=options#layaway)
Online layaway offered? – No.

Is item physically separated from stock? – Yes, but items sometimes are held at offsite locations. If the company is unable to provide the merchandise, the customer will get a full refund.

Minimum item/total purchase cost – None.

Service fee – $10

Down payment amount – 20%

Payment amount – None specified, but must pay 50 % of total within 45 days and pay in full within 90 days or by “holiday cutoff” date, whichever is sooner.

 

Frequency of payments – None specified.

Grace period – Usually none, but can vary by state.

Total timeframe – 90 days or by “holiday cutoff” date, whichever is sooner.

Cancellation charge – Usually $10, but can vary by state; to get a refund, cancellation must be requested in person at the store where layaway was initiated, or in writing.

When can you get your item – Item will be made available within 14 days of final payment.

 

 

 

Layaway's big comeback?
It's not clear yet what Walmart's decision means for the future of a payment tool that just a few years ago seemed to have gone the way of typewriters, VCRs and phones with cords.

Layaway, in which a store holds an item while a customer makes regular payments until it is paid off, became popular during the Great Depression and thrived for decades, until credit cards made it almost obsolete. When Walmart nixed its program five years ago, it cited high costs to run the program and low demand. Things have changed, but the retailer has no set plans to bring layaway back long-term. "We'll see how it goes after Christmas and take it from there," Raddohl says.

Because layaway typically involves dedicating physical space in the store to hold merchandise, as well as paying employees to keep track of accounts, retrieve items and resolve disputes, experts say it can be a hassle.

"I don't think there's a single store in the universe that would have a layaway program if the economy was good and they didn't need it," says Richard Feinberg, professor of consumer sciences and retailing at Purdue University. "It's a tough program to administer." However, he says, retailers, like their customers, are "desperate" right now: "These tough economic times mean retailers can't risk losing a single dollar."

Retail consultant Testa says other retailers probably will be watching to see what Walmart does. "If this is viewed as a very successful program, we'll probably start to see other retailers emulate it -- especially at the middle and low end."

However, the good old days when every department store had a layaway department probably are gone for good, experts say. For one, Feinberg says, retailers will quickly tire of the complaints layaway generates, usually from customers who did not understand the terms or had a customer service issue, and will stop offering layaway if it becomes too much trouble. Also, high-end retailers with a more affluent customer base are unlikely to even try bringing it back: "People who shop at Tiffany's and Bloomingdale's aren't nearly as affected" by the credit crunch, Testa says.

Pay now, get it later
Buying something on layaway does not offer instant gratification -- quite the opposite, in fact. However, some experts say it's a good choice for consumers who are short on cash and want to purchase multiple items, such as holiday gifts or a big-ticket item, such as an appliance. Plus, it's a great option for those who either don't have credit cards or who don't want to pay interest charges if they do have credit.

"Layaway keeps people out of debt and helps with budgeting," says Courtney Cordero, director of community development and education for American Debt Counseling Inc., a 501(c)(3) nonprofit debt counseling organization.

Consumers who don't have the time or discipline to save up for a purchase will come out ahead by opting for layaway instead of credit, Cordero says. "A $5 or $10 charge for layaway seems like a lot -- but it beats paying 15 to 20 percent more with a high interest credit card."

Layaway might take some getting used to for consumers who have never used it -- or waited at the layaway counter as a kid with mom -- but Clarky Davis, the "Debt Diva" for CareOne Credit Counseling debt relief service company, says tough times have changed the consumer mindset and made it a viable alternative. She says: "People really don't want to take on more debt, and they're willing to wait for what they want."

Making layaway pay
Layaway might seem simpler than credit, but consumers still need to be careful, experts say. "In their heyday, layaways were always in the top five complaints to consumer complaint bureaus," Feinberg says. So, if you do use layaway, take note of these tips from personal finance experts:

  • Plan your purchases. "Go into it with a strategy," Davis recommends. "You shouldn't just go out and make willy nilly purchases just because you're putting things on layaway." It's important to avoid impulse purchases or overspending and to factor the payments into your budget, Cordero says.
  • Ask how the store holds the item. "Check with the store to see if it takes the item off the shelf when you put it on layaway," Cordero says. "If not, and if it's sold out, will they get you one? Or will they refund your money?" That's especially important, Cordero says, since one of the advantages of layaway is being able to get a hot item -- before you have the cash to pay for it -- with no interest.
  • Read the contract. "Customers need to read the fine print of the layaway agreement. Are there fees? Is there a fee for not finishing the layaway agreement? How are refunds processed?" Feinberg says. Policies vary by retailer. For example, Sears requires payments to be made every two weeks and offers an additional week grace period before canceling the contract, but Walmart allows customers to choose when to pay, as long as the item is paid off by the agreed-upon time.
  • Keep records organized. Consumers in the past sometimes complained they had put something on layaway, but then went in to make a payment and were told the clerk could find no record of it, Feinberg says. So, it's a good idea to keep all documentation in one place: "Get a receipt for each payment, staple them to the contract, and take it with you when you go to the store," Cordero recommends.

Despite the number of complaints layaway used to generate, experts say many consumers like it -- and following the experts' advice increases the chances you'll be one of them.  "A large percentage of consumers who use layaway are perfectly happy with what happens," Feinberg says. "It works really well for them."

See related: Online layaway: Old-fashioned payment system gets new digital life, You made a layaway purchase? How to retrieve your merchandise, 10 questions to ask about layaway plans

Published: October 5, 2011


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