Layaway is a option to help some consumers with cash-flow for big retail purchases (alas, not T-bone steaks) during the holiday season.  Some of the big box retailers run layaway programs allowing consumers to reserve merchandise with a down-payment and then to pay in full by a certain date.  Layaway programs typically give 2 ½ months of paycheck cycles to complete paying for the merchandise.  There is a small charge for setting up a layaway account and some charge an additional penalty for incomplete payment.  Layaway programs had been common until 2006 when it seems that consumers lost interest and many retailers discontinued them.  The need for layaway programs was rekindled by the financial crisis of 2009.

Consumer retail spending is expected to be up 4.1% in the 2012 holiday season (November and December).   Much of that sales hike must be attributable to prices, since consumer confidence is tepid and their spending intentions show it; two-thirds of consumers plan to spend the same as last year, 21% plan to spend less and just 11% plan to spend more.  Consumers are concerned about unemployment, underemployment and upcoming ugly news on taxes.

Consumers have become very sophisticated comparison shoppers.  Shoppers can photograph a barcode and a smartphone “app” can reveal which stores (brick or online) have the same barcode and at what price.  This gives the consumer information much closer to “perfect” than was available previously.  It helps explain brick and mortar retailer’s resentment over having their merchandise physically inspected but losing the sale to an online merchant.  Purchases over smartphones account for 15% of total sales during the holiday season, and other online platforms account for almost a quarter of total sales.  Clearly “online layaway” makes sense to some consumers.

Walmart’s Layaway program is available for higher-ticket items such as electronics, jewelry, toys, appliances and large sporting items like trampolines.  It costs $15 to start an account which must be paid in full by Dec 14th.   The $15 is refunded as in-store credit if account is paid off, or becomes a cancellation fee if the account is unpaid.

Kmart’s layaway program is only slightly different.  It allows a wider array of items and charges steeper financial penalties if you don’t complete the payments on your merchandise choices.   Sears uses fees similar to Kmart and prominently advertises “online layaway”; set up the account, select merchandise, make payments and either pick up at a Sears store or have the merchandise shipped.

Layaway offers advantages to shoppers, who know what they want, who found it at a price they’re willing to pay, and who will have funds to pay in full by mid-December.  But there are downsides to layaway.  Prices often start as “sale” but stay at that level after the sale period and dive even deeper in early December – so, you might get it cheaper.  Also, account setup and cancellation fees can be a stiff penalty – in the event that the buyer does not complete the payments.  Layaway programs can be helpful to consumers with a good grasp of prices and their own cash flow schedule.  Those who are unsure of either should probably stay away.

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective.