Return of layaway lures shoppers

Retailers see jump in service that predates credit cards

Jaclyn Trop / The Detroit News

As the rest of the country rediscovers layaway, Michiganians accustomed to combating recession are surprised by the media attention given to its resurgence.

Lines are long and storage aisles are full with PlayStations, Xbox 360s and Nintendo Wiis that have been put on layaway until Christmas at area Kmart stores, according to Todd Grossmann, manager for the Kmart SuperCenter on Telegraph Road in Detroit. But demand for the pay-as-you-go service is no greater than last year, he said.

Layaway plans, where shoppers set aside merchandise for a small service fee -- typically $5 initially -- and pay the sales price in installments, were popular before credit cards became common in the 1970s. Now banks are lowering credit card limits and home equity lines, and even consumers who have credit are reluctant to add to their balances during the economic downturn. That has layaway returning as an increasingly popular alternative.

"It's been good for us," said Julie Feldman, co-owner of West Bloomfield clothier Guys N Gals. "Instead of debating between buying a few things, they get it all. Every time they come in to make a payment, they put more stuff on layaway."

Though Guys N Gals has offered layaway since it opened in 1974, the number of layaway transactions has increased 20 percent since July, compared with the same period last year, Feldman said. The spike coincided with the back-to-school shopping season.

At Guys N Gals, where women's jeans are priced between $60 and $200, the storage room is full with layaway purchases, especially purses.

Layaway requires discipline

Pay-as-you-go is a "good alternative" when shoppers have maxed out their credit cards or when banks have reduced credit unexpectedly, according to Beth Allen, an independent financial planner in Farmington Hills.

"It reinforces the idea of do you really want the item?" Allen said. "Your whim for wanting to purchase has gone away."

As the antithesis to impulse buying, layaway purchases require discipline and advance planning. Many shoppers see the plan as a relic of their parents' generation.

"We were all kind of surprised it came back," she said.

Mega-retailers such as Kmart, Sears, Burlington Coat Factory and T.J. Maxx have made layaway a cornerstone of their marketing this holiday season.

Shoppers at Sears, which is offering layaway on general merchandise for the first time since 1989, have been surprised by the revival of layaway, according to Sears spokesman Tom Aiello.

At checkout lines on Black Friday, "customers were saying, 'You've got layaway? Hold on, I'll be back,' " Aiello said.

Though Kmart, owned by Sears Holdings Corp., has offered layaway since it was founded in Detroit in 1962, an advertising campaign rolled out in October emphasizes its availability.

"When we first came out of the gates, a lot of critics said it's a tired concept," Aiello said. "That people love their credit cards too much and won't give up instant gratification."

He didn't say how much sales have risen but said there's been an "increase at both stores across the board," from tools to toys.

Layaway stigma evaporates

The negative connotations associated with layaway -- that the plan is only for shoppers with bad credit or low income -- are fading, Aiello said. With words such as "recessionista" and "frugalista" becoming media buzzwords, well-heeled shoppers are using the service, too.

"The stigma seems to have evaporated," Aiello said. "They just don't care."

Layaway requires a degree of optimism, according to University of Michigan marketing professor Aradhna Krishna. "People are tempted to buy something and they hope they'll be able to pay, but maybe they won't."

Though the term appears to have found success as a marketable catchphrase this holiday season, Krishna said, layaway is not as great an opportunity for shoppers as it may appear. "It's like any other financing scheme except you pay for it upfront and take it home later."

And, unlike with cash or credit, when buyer's remorse strikes, cancellation fees apply, ranging from $5 to $35 at various stores, or 10 percent of the purchase price in the case of Kmart.

"My suspicion is there will be a sizable chunk of people who need to cancel," Krishna said.

So far, this year's pick-up rate at Kmart is stronger than last year, according to store manager Grossmann.

As of Monday, his store had about 800 layaway accounts, with items from bicycles to "bed-in-a-bag" linen waiting to be picked up. He attributed the higher redemption rate to better budgeting among shoppers.

For shoppers who can make regular payments, layaway offers another benefit, Aiello said. "Where else can you store a treadmill until Christmas?"

You can reach Jaclyn Trop at (313) 222-2300 or jtrop@detnews.com.