A Layaway Economy?


How much of consumer purchases this season will be made on layaway plans? The layaway concept largely faded from view as the public used credit cards and home equity to fuel consumer demand. But Google searches imply that interest in layaway purchase plans has skyrocketed as our economic conditions have worsened.

Here’s the breathtaking chart from Google Zeitgeist.


Stores are responding to this new demand for layway plans. Kmart, for instance, will reportedly allow consumers to put just 10 per cent down. The balance of the purchase can be paid off in biweekly payments over the next eight weeks. Kmart executives have described this year’s demand for layaway purchases as  ”tremendous.”

The Miami Herald describes the death and rebirth of layway plans:

Most retailers got out of layaway in the 1990s and post-2000 as credit cards became ubiquitous and the programs became too costly for retailers to administer.

Wal-Mart was one of the last holdouts, eliminating the program in 2006, and the world’s largest retailer has no plans to get back in the business this year.

But some Marshalls and T.J. Maxx stores still offer layaway, as does Burlington Coat Factory. For many retailers, it’s a case of looking for any strategy to drive business during what is expected to be the worst holiday season in years.

While it may be good news for consumers that stores are bringing back layaway, you can see how this increases risks for retailers. It gives them direct exposure to consumer credit risk at a time of rising unemployment and increases administrative costs as they take on collection and bookkeeping duties once farmed out to credit card agencies.

There’s not yet very much hard data about how much of this year’s suprisingly robust post-Thanksgiving sales were made with layaway plans. But if the Google data reflects actual consumer behaviour, we wouldn’t be surprised to see that retailers took in far less cash and took on far more consumer credit exposure than is widely appreciated.