Layaway is the Only Way for Some
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CEO, said, “The U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade and we believe it is out of date with the times.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?
As for layaway programs, while it’s true “few” consumers use layaway, it is their only avenue to a better quality of life. Yes, layaway programs are costly. Yes, they are less “necessary” to hold customer than in previous days. Still this strata of consumers have basic needs that only layaway can provide. Thus, they represent opportunity for efficient/compassionate retailers. Since Wal-Mart is the former but perhaps not the latter, it would seem beneficial for other retailers seeking this consumer audience to re-study layaway as an affordable constructive service.
A Canadian friend of mine was touring through Baltimore on Friday with me. I took him through fine neighborhoods with beautiful homes and lovely retail centers. Then a short distance away, I took him through a typical poor neighborhood. “We have nothing like that in our Canadian cities,” he said.
Layaway is not the answer to meeting the underclass’s and working poor’s needs for goods and services. Nor is it credit. Nor is it minimum wage.
If retailers want to help close the widening gap between rich and poor, here are some things that an enlightened retail industry should consider supporting.
1. Programs to combat teenage pregnancy — the best ticket to life-long poverty is an early baby.
2. Sustainable infusion of business people into our public schools — kids should understand opportunities in the US.
3. Affordable higher education — individuals and immigrants can develop marketable skills.
4. Eliminate government supported gambling — a significant number of the working poor got there because of gambling.
5. Mass transit — poor folks can’t afford a car to drive on the government-sponsored free highways. This drastically reduces their employment options.
6. Credit counseling — the keys to the kingdom are systematically withheld from the poor.
7. Affordable health care — 14% of the GDP is spent on health care, yet 50,000,000 working poor and underclass have no insurance. Many more are underinsured. Retailers employ tens of millions of these people.
8. Tax reform — sales tax and high income tax breaks are killers for the poor.
9. Effective programs to rehabilitate drug and alcohol abuse — most abusers are looking for a way out.
10. Amnesty programs for illegal immigrants — let’s deal with the 10,000,000 illegals, most of whom are locked in poverty cycles.
11. Prison reform — how can we rehabilitate and assimilate the 5,000,000 people now in our penal system?
As I explained to my Canadian friend, poverty is institutionalized in the country. The retail industry will benefit if we begin to close the gap between rich and poor.
This topic really hits home. I had forgotten about layaways. When I was a child growing up, I would not have had Christmas presents without layaways! I think there is an opportunity to advertise that a particular retailer has layaways available and make it a positive, not just something for the have-not’s! Having been a layaway family, I have fond remembrances of going down to the store with my mom to make a payment knowing that we were getting closer to having something we could not have afforded otherwise. Most of the RetailWire readers do not know what it means to end layaways, but I do – and I think it is WRONG! I challenge the readers to help keep and develop programs so that those people who don’t have the means to pay all at once have a way to get things that many of us take for granted.
I think Wal-Mart’s decision to eliminate layaways is in direct conflict with the principles that made them a great ally of the lower income family.
As I look at Wal-Mart’s entry into the credit card business and the 0% interest terms they are now offering on high-end electronics, it reminds me of the mess that Sears got into when they lowered their credit card standards to drive sales and eventually ended up writing off a ton of bad debt. The only way Wal-Mart can retain the former layaway shopper is to do the same thing and take similar financial risks.
If I were Sears/Kmart I’d jump all over this opportunity to get low income shoppers back into my stores!!!
Retailing is a mature business in America. Comp sales increases of 3% are often a struggle. Eliminating layaways, even if only a tiny percentage of customers, can reduce the comp sales figures. One percent is one-third of three percent, and three percent is a typical comp sales goal. Allegedly there are 12 million undocumented people in the America, which is 4% of our total population. How many of these people have bank accounts or credit cards? Wouldn’t a higher-than-average proportion of these people need layaways? Wouldn’t a higher-than-average proportion of these people shop at low-end merchants such as Wal-Mart?
Unfortunately, if a retailer did find a way to turn a profit on layaway, they would be accused of taking advantage of the poor. Retailers don’t like that kind of bad press. There are other businesses like the rent-to-own that have already found a way to meet some of those needs.
Most Americans have access to cheap credit and the availability of this credit has never been greater. Nearly every major specialty, consumer goods and grocers today offer some sort of PL credit card available to its customers.
The author acknowledges that only 5 to 7% of American consumers would likely be interested in lay away. Curiously, Wal-Mart recently came under fire for expanding the Metro 7 apparel line to all stores that it now acknowledges should have been limited due to the percentage of customers to whom this line would appeal. It is a function of ensuring that the product mix match the store of the community demographics.
I predict that Wal-Mart will correct its course here using a creative solution to meet this small customer segments needs. I have suggested several ideas as an example of what they may do.
1. Utilize their extensive data base to identify stores where customers who use lay away represent a significant portion of the customer base.
2. Develop and offer a specialized credit card specifically for customers use for lay away.
You can be sure that Wal-Mart has spent a good amount of time analyzing the cost/benefit of lay away. With their current comp store sales they are not in a position to give away sales, so you may surmise that the program was unprofitable overall and a logistics/operational nightmare. Focusing its store operations on in-stock rather than product storage in stores will deliver greater return on their investment.
Unlike some of the respondents, perhaps because I’m younger — or is that wishful thinking? — I’ve no personal experience with layaway programs, so I’m apt to view them as one of those quaint perks that became obsolete (much like the “hats trimmed free of charge” sign one sees on the Lits Bldg in Philly.)
But I think there will always be merchants — probably small, local ones — who will provide a service akin to this; some will do it because they are big hearted, others because they feel they are creating goodwill…but it will be provided by someone.
That the “someone” will not include Wal-Mart is not entirely ironic: to no small extent their low prices helped raise the status of a whole class of formerly impoverished, and helped make programs like layaway obsolete.
I agree with Bill Robinson’s post, however, solving the problems that are integral to the discussion of Layaway are going to take a long time, effort, and DESIRE to solve. I have no idea when this is going to come to pass. Hopefully sooner rather than later if we are going to truly progress as a nation. Having said that, I also agree that for a small percentage of shoppers, layaway is a great help and can be the difference between having or not having and, yes or no. Kmart should FULLY capitalize on its Layaway option and LET customers know that they are willing to extend a helping hand to be able to put together a Nicer Thanksgiving meal for their family, or nicer Christmas morning for their kids. When was the last time any of us bought at a rent-to-own ? These stores, while offering a service, do so at a significant price mark up. For example, a 24 inch TV for $10.99 a week for 47 weeks. sure–they can afford the 10.99 a week by scrimping on other things, but do the math; it is not pretty. That same TV on layaway at Kmart, on sale for $279.00 is a MUCH better bargain and how much repeat traffic will they gain by the goodwill they have created in these shoppers. Their money is just as green as everyone else’s.
This may be an opportunity for Kmart to create relevance and improved value in a demographic that is important and could be even more important for them.
An afterthought – perhaps the cost of layaway to the retailer should come out of the PR budget. I’m sure they could find some way of making money out of that.
George Andrews’ depiction of the operational chaos and costs surrounding layaway is spot on. Having personally worked at a temporary Christmas job in customer service at a department store during college I got to see first-hand both the joy and heartbreak of the layaway process.
It was wonderful and heartwarming when the item was proudly paid off and picked up before Christmas. But it was horrible and not infrequent that the item could not be found (often because it had been returned to stock) or there was a dispute over how much money had been previously paid toward redemption, or if it had been paid in time. I also found it shocking how many customers put some money down and yet never ultimately came back to redeem their purchase. The popular layaway items were often the most in-demand items that season and both the store and other customers suffered from having the items “stuck in the back” and unavailable for sale, particularly if the layaway sale was never completed.
This is an interesting topic and one that I had not given much thought to in recent years. It seems obvious that stores working on already razor thin margins would find it hard to justify the expense of offering layaway. Yet it also seems obvious that it is worth trying to help low income shoppers to purchase special items for their families without going the “payday loan” route. My hunch is that if it is not Wal-Mart or Kmart, some other maybe new retail establishment or division will rise to find a way to meet this need for the layaway market. But probably it will entail the layaway customer paying a premium or an embedded larger burden of the operational costs associated with the layaway process.
Operationally layaways are a nightmare for the store manager. As a store manager with layaway, I knew I lost money and made as many people mad as I did happy. Wal-Mart operates the smallest stock rooms for their size and volume, yet they rent trailers to handle the additional stock and inventory needed for Christmas sales. Then you have to rent trailers on top of that for layaway. Until you have gone in the back room and seen over 100 layaway bikes hanging from the ceiling you can’t imagine how big a mess it can be. Problems:
-Need additional register for layaways.
-Need additional stock people to store and retrieve layaways.
-Payroll to call or follow up on past due layaways.
-Rent of storage trailers.
-Layaways returned to stock.
-Markdowns on layaways returned that are past their peak selling season or damaged in storage.
-Customers mad because you couldn’t find their layaway, it took too long or you returned it to stock when they didn’t make payment.
I want the communion dress, Christmas presents and better opportunity for all. I don’t think asking a retailer to lose money is the way to solve the problem or they should get the blame for deciding not to lose money on layaways. Solving the wealth gap is perhaps going to take a list like Bill’s and a whole lot more.
The only viable option to layaway is making sure that the customer gets the product of choice while it’s available rather than finding ways to help them save up for it. This sounds like credit to me but I do understand why it’s difficult, if not impossible, for some people to even consider. Alternative forms of buy now pay later are not practical for many even if they could bring themselves to behave that way. In an ideal world, eliminating the causes of poverty would certainly be preferable but I don’t know anyone who thinks that we’re anywhere near close to that utopia. Until then, I have no more constructive suggestions than anyone else but lean towards some sort of idealistic, altruistic cooperative organisation where people’s items of choice could be purchased and stored for them until paid for. Or is that also just too Utopian to be possible? Perhaps if it was a collaborative effort on the part of several retailers they could use their buying power to ensure that there is still an adequate profit margin to justify participation for themselves while helping/satisfying customer demand.
Which retailer will likely benefit the most if/when the minimum wage is increased? I submit that it would be Wal-Mart and that’s why they now support it. A new minimum wage will make their smaller competitors (and themselves) raise prices and in so doing that will accrue even more of an opportunity for giant Wal-Mart to increase their “price” reputation and dominance. And as long as price is a key factor in consumer purchasing decisions that would be a huge plus for Wal-Mart.
Layaway is an opportunistic marketing tool for Wal-Mart since they have a large and growing number of consumers who need such a tool to accomplish their purchasing objectives. Wal-Mart views layaway as an investment, a relationship link with such customers, and they will keep it in their bag of “Santa Clause” services so long as a large number of cash-strapped customers exist.