With Less Credit, Layaway Makes a Comeback

By Beacon Staff

Heading into the frantic Christmas shopping season, national headlines are proclaiming a resurgence of layaway payment programs as businesses respond to cash-strapped customers who have grown weary of credit cards. Large chains that previously regarded layaway as archaic are now viewing it as a viable alternative. For customers, wobbly from the recession, it’s a safer way to budget and avoid rising credit card interest rates.

Layaway’s return to prominence is significant, as it represents a shift away from the credit-driven consumer philosophy that has taken part of the blame for the nation’s economic woes. Instead of shoppers getting what they want now and dealing with payments later, more are buying what their current budget allows and exhibiting patience. Credit cards, of course, will still be popular during the holiday season.

In Montana, the news is met with a chuckle by local merchants. Keeping in line with the small-town community spirit, stores here actually never got rid of layaway, even as the once-popular payment system was declared defunct in many other parts of the country. The peak of layaway’s popularity was the 1960s and 1970s.

“We’re so old school that the layaway concept never went away,” said Don Scharfe, owner of Rocky Mountain Outfitter in Kalispell.

With layaway, customers place a down payment on an item so the store will hold it, or put in on “layaway.” Customers do not get to take their merchandise home until it is fully paid for. Each company has its own payment policy, though national chains such as Kmart and Sears generally have stricter guidelines. Many policies require at least 20 percent down with a $5 or more fee and a defined payment period.

The fees are to cover the potential lost revenue by taking a product off the shelves, and to pay for the hassle and possible increased labor. These are the reasons, along with the general rise of credit cards, that layaway died off nationally to begin with.

But in Montana, you’re not going to find many independent businesses charging fees. To Trek Stephens, owner of the Toggery in Whitefish and Kalispell, fees defeat the whole purpose of layaway. The system is designed to ease the strain on customers, he believes, not to create new financial hurdles.

“That’s crazy,” Stephens said. “I would never do that.”

Even time limits often come with neighborly grace periods. Scharfe, whose business accumulates a few thousand dollars worth of layaway during the holidays, said: “If it takes six months (to pay it off), I’m okay with it as long as they keep coming in and chipping away.”

“This sounds corny,” he said, “but pretty much the only rule is to make customers happy. In this size town, you have to keep people psyched.”

Layaway is easier for small businesses to implement as they are dealing with considerably less merchandise. Thus, avoiding fees is more feasible business-wise for the little guys. But that doesn’t mean layaway comes without its risks and hassles for independent Montana stores, especially for slightly larger retailers like Sportsman Ski Haus.

Dave Harvey, vice president and general manager of Sportsman Ski Haus, said his company requires customers to make a 20 percent down payment on a product. Then they have 90 days to pay the rest. Keeping merchandise off the shelves for those three months can create problems. Sometimes customers don’t come up with the rest of the money, so the product – especially if inventoried for a specific time period such as the Christmas shopping season – essentially goes to waste.

“There’s definitely a cost of doing business,” Harvey said. “We never took layaway away, but it’s been tempting at times, frankly.”

But Harvey doesn’t see the store getting rid of the program anytime soon, especially since “we’ve seen a substantial increase in layaways this year.” Harvey views the uptick as a response to the credit crisis and overall struggling economy.

“I bet there are a lot of Flathead Valley residents who cut up their credit cards this year,” Harvey said.

Layaway began making its comeback nationwide last year, with more businesses jumping onboard this year, especially as “Black Friday” approaches. But some prominent chains, such as Wal-Mart and Target, still maintain no-layaway policies. Wal-Mart has said the system is expensive and drives up the costs of its products.

Perhaps more than anywhere, layaway has grown on the Web, picking up a full head of steam heading into the Christmas season. A Web site called www.elayaway.com has emerged, calling itself the Internet’s “largest online layaway provider.” At www.lay-away.com, the slogan is “a little bit now…for a whole lot later!”

Stephens, the Toggery’s owner, is waiting for the Christmas shopping rush to begin on Black Friday, the day after Thanksgiving. While layaway will likely represent only a small percentage of his total sales over the holidays, it will again be considered an important element of his business model.

“When you remove layaway programs, it just alienates your customers,” Stephens said. “If you want customers, you should be adding programs instead of taking them away.”