Layaway in Retail Business

Layaway is a purchasing method often employed by retailers, where the buyer reserves an item for later pickup by placing a deposit. This shopping strategy became popular before the widespread use of credit cards and remains a viable option for those who prefer to avoid interest charges and debt. Layaway offers several benefits, including budgeting flexibility, interest-free purchasing, and reserved items for future purchase.

How Layaway Works

Layaway programs typically follow a standard procedure:

  1. Selection: The customer selects the item(s) they wish to purchase.
  2. Deposit: The retailer requires a deposit, often a percentage of the total purchase price. This initial payment may also include a service fee.
  3. Payment Plan: The customer makes periodic payments over a specified period.
  4. Storage: The retailer stores the item(s) until the final payment is made.
  5. Pickup: Once the customer completes all payments, they can pick up their purchase.

Key Elements of a Layaway Program

Deposit

The initial deposit is crucial for reserving the item and is usually nonrefundable. It demonstrates the customer’s commitment to the purchase and covers any administrative costs the retailer may incur.

Service Fees

Retailers may charge a service fee for layaway plans. This fee compensates the store for storage, handling, and administrative activities related to managing the program. However, some retailers may offer promotions with reduced or waived service fees during peak shopping seasons like the holidays.

Payment Schedule

Customers typically agree to a regular payment schedule. Payments can be made weekly, bi-weekly, or monthly, depending on the retailer’s policy. The flexibility in payment scheduling helps customers manage their finances better without accumulating debt.

Termination of Agreement

If the customer fails to complete the layaway payments within the agreed timeframe, the contract may be terminated. In such cases, the retailer might return the payments made minus any service fees and restocking charges. The reserved item will then become available for other customers.

Advantages of Layaway

Interest-Free Purchasing

One of the significant benefits of layaway is that it allows customers to purchase items without incurring interest charges, a common downside of credit card purchases.

Budget Management

Layaway helps customers manage their budgets by allowing them to spread the cost of an item over an extended period, making it more affordable.

Reserved Items

During high-demand periods, such as holiday shopping seasons, layaway ensures that customers can reserve popular items that are likely to sell out.

Credit Not Required

Layaway is a viable option for individuals with poor or no credit history, as it does not require a credit check. This inclusivity makes it an attractive purchasing method for a broader range of consumers.

Disadvantages of Layaway

Nonrefundable Deposits and Fees

Layaway plans typically involve nonrefundable deposits and service fees. Should the customer decide to cancel the layaway, these fees and deposits may not be returned.

Storage Limitations

Retailers may limit the types of items eligible for layaway due to storage constraints. Bulkier items may be excluded from layaway programs.

Cancellation Policies

Retailers can impose strict cancellation policies that may deter some customers. Failure to adhere to the payment schedule can result in the layaway contract’s termination, with customers losing their deposits and fees.

Evolution of Layaway

Historical Perspective

Layaway programs gained traction during the Great Depression when consumers needed flexible purchasing options. It was prevalent before the advent of consumer credit cards, offering an alternative to on-the-spot cash payments.

Modern Adaptations

In recent years, layaway programs have seen a resurgence, especially during economic downturns when consumers are more cautious about incurring debt. Retail giants like Walmart and Kmart have revamped their layaway offerings to cater to contemporary shoppers’ needs.

Digital Layaway

The digital age has ushered in innovative layaway solutions. Some online retailers now offer “e-layaway” services, where customers can make payments online. This digitization removes geographical barriers and broadens accessibility.

Layaway vs. Other Payment Methods

Layaway vs. Credit Cards

Layaway offers a debt-free alternative to credit cards. While credit card users may enjoy immediate possession of their purchases, layaway ensures no interest charges accumulate, making it a cost-effective option.

Layaway vs. Buy Now, Pay Later (BNPL)

Buy Now, Pay Later (BNPL) is a newer payment method allowing customers to split their purchases into several interest-free installments. Although similar to layaway, BNPL typically does not involve storing the item; the customer takes immediate possession of the purchase. Layaway, however, secures the item until full payment is made, which can be advantageous during periods of high demand.

Walmart

Walmart reintroduced its layaway program, mainly targeting holiday shoppers. The program typically runs from late summer to early winter, covering many product categories including electronics, toys, and home goods.

Kmart

Kmart has maintained a robust layaway program for years, providing both in-store and online layaway options. The retailer often runs promotions to attract customers to utilize this payment method, especially during the holiday season.

Sears

Sears offers various layaway plans, including both in-store and online options. Customers can choose from an 8-week or 12-week plan, depending on the item’s price.

Conclusion

Layaway remains a valuable and relevant payment strategy in the modern retail landscape. It provides numerous advantages, including interest-free payments, improved budget management, and item reservation during peak shopping periods. While it is not without its drawbacks, such as nonrefundable fees and strict cancellation policies, layaway continues to be a popular choice for budget-conscious consumers. As the retail environment continues to evolve with technological advancements, layaway programs are adapting to meet the needs of contemporary shoppers, ensuring its continued relevance in the market.