Layaway Makes a Comeback

This article was originally published by Msn.com on Wednesday, Nov. 12, 2008.

No credit? No problem! Some businesses are dusting off a budget-friendly strategy familiar to your parents and grandparents. Now you can even get a replacement hip that way.

By Katherine Reynolds Lewis

After falling out of favor when credit was cheap and easy, the layaway is back.

"We have seen a huge increase," said Michael Bilello, the senior vice president of business development for eLayaway, which offers layaway plans for everything from big-screen televisions to hip replacements. "This is something fiscally responsible Americans are going to use."

Kmart even hired Kate Gosselin, a star of the reality television show "Jon & Kate Plus 8," to tout layaway as a sensible way to budget for Christmas while keeping gifts out of the house and safe from children's prying eyes.


For those too young to remember the heyday of layaway, here's how it works:

You want to buy an item in a store. You make a down payment and ask the store to set the product aside while you make regular payments. Once your payments add up to the purchase price, you take the merchandise home.

Credit cards, handy as they are, require credit, and that's something rapidly disappearing for those with blemishes on their records. And though saving the cash beforehand sounds admirable, it's something few of us do.

A throwback to hard times
Layaway originated in the Great Depression, when cash was scarce and people didn't have easy access to credit.

By the 1970s, it was so mainstream that the movie "Saturday Night Fever" showed John Travolta's Tony Manero character putting the perfect disco shirt on layaway.

But as mass marketing and the consumer credit market grew, retailers started discontinuing layaway programs. Eventually, even über-discounter Wal-Mart ended layaway in 2006.

"In the '90s, we had become such an instant-gratification society that it didn't make sense. . . . Customers weren't as interested," said Ellen Davis, a spokeswoman for the National Retail Federation. "Not only does layaway take up valuable store space and inventory space, it also requires the assistance of at least one employee when the store is open."

A handful of retailers hold on
Only a few national retailers kept layaway programs going, including Sears and its subsidiary Kmart, Burlington Coat Factory and TJX, the parent of T.J. Maxx and Marshalls.

"We always believed it was a service to the customer," said Bob LaPenta, the treasurer of Burlington Coat Factory. In the current economy, "we have seen an increase in layaway business, but it's not off the charts. It is growing at a rate faster than our total growth."

Layaway is popular with baby furniture and big-ticket items such as winter coats. By policy, customers must return within 30 days (or 90 days for Baby Depot merchandise) with full payment.

This holiday season, the strained economy prompted Kmart to lead its advertising campaign with ads featuring the company's layaway program, spokesman Tom Aiello said.

"This idea of layaway all of a sudden has a great deal of relevance," Aiello said. "It's been hugely successful for us. Layaway is up very much over previous years."

Because the risk to the retailer is small -- the item can be restocked easily enough if a shopper doesn't pay -- layaways typically don't require a credit card or a credit check. (A default isn't reported to a credit bureau either.) Almost all retailers now charge fees to set up layaways.

Lay away a trip or a nose job
Companies are also extending layaway to such items as vacations and sports tickets.

Gate 1 Travel lets you book a tour package and pay incrementally up until 45 days before the trip, said Marty Seslow, the company's vice president of marketing. The program is a response to customers' increasing reluctance to commit to a vacation early. The company keeps a $100 deposit if the trip is canceled earlier than the 45 days before the trip. (If you cancel after that point, you could be responsible for 50% to 100% of the total cost, depending on the package.)

You can even turn to layaway for discretionary medical procedures, such as knee or hip replacements. If your physician recommends surgery within the next 12 months, for instance, you can begin a layaway plan through eLayaway so that by the time you go under the knife, you've paid the deductible in full, Bilello said.

The online layaway
Transactions through eLayaway in October were up 1,400% from October 2007, Bilello said. The company partners with more than 1,000 retailers to offer layaway option.

Customers pay a 1.9% transaction fee and agree to a schedule of payments to be deducted from their bank accounts. Once the last payment is made, the item is shipped. There is a $25 fee for canceling a purchase.

"We have people who open their day planner and shop for the entire year," Bilello said. "There's a social awakening that we're wary of credit cards, and what they're doing to people with the 30% APR. There's a smarter way to plan and pay. . . . You may have to wait three months, but you won't have items repossessed or go to a payday lender."

Another online service, Lay-Away.com, offers a selection of goods from its own site.

What you should know about layaway
Sound good? Ask these questions before you put something on layaway:

• What service fee or layaway charge will I pay?
  
• Is there a cancellation fee if I don't complete the layaway?
  
• Will I receive a full refund if I cancel the layaway?
  
• What form will any refund take -- cash or store credit?
  
• What is my payment amount, and when are payments due?
  
• What happens if I miss a payment?
  
• Will I pay shipping charges or anything else additional?
  
• Could the store substitute another item for my layaway purchase and, if so, under what circumstances?

Where to find layaway
Only a few national retailers offer layaway, and their policies differ. Here's a rundown:

Burlington Coat Factory

• A down payment of 25% and a $5 service fee are required.
  
• If 30 days pass without a payment, you pay a $5 cancellation fee, and the merchandise returns to shelves. You receive your balance as a store credit.

eLayaway

• Items must be purchased through eLayaway or on selected retailers' Web sites.
  
• You pay a 1.9% transaction fee.
  
• Payment schedules run from three to 13 months, within merchants' constraints.
  
• Payments are automatically deducted from your bank account.
  
• If you cancel or fail to complete a layaway, you pay a $25 fee.

Kmart

• A down payment of 10% and a $5 service fee are required.
  
• You must make payments every two weeks for eight weeks.
  
• If you miss a payment by more than seven days, you pay a $10 restocking fee and receive a refund in whatever form (cash or credit) you paid.

Lay-Away.com

• Items are purchased through the Lay-Away.com site.
  
• A down payment of one-sixth of the purchase price is required.
  
• There is a six-payment maximum.
  
• Payments are made through online checks from your bank account.
  
• If you go 45 days without a payment, you pay a $35 restocking fee, and money you've paid is refunded to your bank account.

Sears

• A down payment of 20% or $15, whichever is greater, and a $5 service fee are required.
  
• Most merchandise must be fully paid by Dec. 23, under a holiday expansion of the layaway program to all registers in the store. Jewelry can be put on layaway year-round.
  
• If you fail to complete payment, you pay a $10 cancellation fee.

T.J. Maxx and Marshalls

• A down payment of 10% and a service fee, typically $5, are required.
  
• Payment must be completed, and items taken home, within 30 days.
  
• Layaway is offered in select stores only; call your local store to see whether it's available.