Commentary by George Anderson
The gap between the haves and have-nots in America has continued to widen and there's no doubt that large numbers of people are having a very difficult time making ends meet.
Retailers serving consumers on the bottom rungs of the economic ladder have seen how difficult it is for their customers. Some have gone so far as to take steps that once could not have been imagined, such as Wal-Mart's support for an increase in the national minimum wage.
In October 2005, Lee Scott, Wal-Mart's CEO, said, "The U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade and we believe it is out of date with the times. We can see first-hand at Wal-Mart how many of our customers are struggling to get by. Our customers simply don't have the money to buy basic necessities between pay checks."
Mr. Scott's statement on behalf of lower income consumers along with his company's principled focus on making life more affordable for these very same people makes Wal-Mart's decision to end its layaway program on Nov. 19 all the more puzzling.
First, for some background: According to the U.S. Treasury Department, 10 percent of American households (more than 20 percent of low income households) do not have a single individual who possesses a bank account or has access to credit.
For many without bank accounts (and therefore credit) the reasons they do not have personal savings in a financial institution are varied. Some simply do not have the money to put into an account. Others have money but not enough to meet minimum balances or to be able to afford bank fees. Still others are intimidated by the banking process (in some cases because they are here illegally) and choose to deal exclusively in cash.
Many of these consumers are regular Wal-Mart customers.
According to various sources, the typical Wal-Mart household earns between $35,000 and $40,000 a year. That means, many of the chain's shoppers (including some of its own employees who are also customers) earn much less. It is this group of consumers who make use of layaway programs most often.
Many merchants (Wal-Mart is not alone in this regard) find layaway to be a money-losing proposition. Typically, stores hold product for anywhere from 30 to 90 days with no interest charged. Retail businesses thrive on turning inventory over quickly. Layaway is slow. Slow is costly. Costly can be deadly for companies working on thin margins.
Fairness requires us to mention that fewer consumers use layaway programs today than they once did. Only five to seven percent of shoppers, it has been estimated, currently make use of layaway programs. Of course, many (re: most) who are in need of layaway programs are those without bank accounts and access to credit. They are, for the most part, the working poor.
One of the assumptions made with layaway programs is that there is a spike in their use in the lead up to Christmas. While we don't have statistical data to quantify this number, anecdotal information gained by speaking to consumers in Plainfield, NJ (a city with many below or just above the poverty line) indicates that layaway programs are used year-round.
Small home appliances, furniture, electronics and clothing were among the items consumers told us they bought at various times of the year in local shops and at least one chain store - Kmart.
One woman, who asked to remain anonymous, told us of her desire to see her daughter in "a most beautiful dress" as she celebrated first Communion. The dress in question cost $110, more than half the woman's weekly take-home pay cleaning offices at night. "If I could not have the layaway," she said, "my daughter would not have the dress on her special day. She should have the dress on that day."
Yes, she should. The question as more stores discontinue layaway programs is how?
Discussion Questions: Few consumers, we know, use layaway programs. Those who do, for the most part, truly need them. What is the answer to the dilemma faced by low-income consumers and the merchants that serve them? Are there changes that merchants could make, for example, that would make it possible to operate layaway programs profitably?