Perhaps more than at any other time of year, the winter holiday season sends consumers into a shopping frenzy. For 2014, the National Retail Federation projects that consumers will spend an estimated $616.9 billion, a 4.1 percent increase over last year.
Some shoppers will plunk down cold hard cash. Others will swipe their credit card or debit card. What about shoppers who lack any of those means of payment? Well, they aren’t necessarily left out in the cold.
Weighing the Options with Layaway Plans
Major brick-and-mortar retailers, along with mom-and-pop stores, tout layaway plans as a way of helping credit-strapped consumers buy what’s on their holiday wish lists. With layaway, a shopper makes a down payment on a purchase and then pays off the balance within a certain timeframe – typically less than three months. Only then does the customer get the goods.
Layaway plans generally entail fees for setting up an account or for storage of the merchandise prior to completion of payment.
Despite the extra fees and inherent lack of instant gratification, layaway plans work for some shoppers. Even with the economy purported to be on a post-recession upswing, many families among us have no credit because of job loss or financial mismanagement, and no plastic with which to hit the mall running to tell the sales associate: “Charge.”
Where the “Buy Now, Pay Later” Mentality Began
Many observers of consumer behavior mistakenly believe that layaway plans originated with the rise of big box stores in the 1960s. Rather, layaway has roots much deeper in Americana. Buying on installment, which is what a layaway arrangement is, has a rich history dating to19th Century America. It’s how farmers often bought equipment and tools in that era.
During the 1920s, the vast majority of consumer durables, such as refrigerators, washing machines and furniture, were purchased on installment. Plastic cards only started to become a way of life in the United States in the mid-1970s.
The credit crisis of 2008 produced a rediscovery of layaway. Refinements came with the digital age, some retailers now offer online layaway, and merchandise can be shipped to the purchaser’s home. We’re moving further away from the days when our parents and grandparents drove to the store to purchase – and later make payments on – holiday gifts.
Some large retailers have been eliminating fees for setting up layaway accounts, in order to lure more consumers to layaway their goods. In addition, at least one discount retailer ran a 2014 offer eliminating the layaway down payment.
In essence, such retailers accept a cut in the profitability of their layaway plans in order to position layaway as promotions or extensions of their customer loyalty programs.
So, what should holiday shoppers look out for with layaway plans?
Read the Fine Print
The Better Business Bureau (BBB) urges consumers to pay close attention to the layaway agreements that they’re thinking of signing. This watchdog agency advises shoppers to “get everything in writing.”
According to the agency’s website, consumers should inquire about the retailer’s track record with the BBB. Are there any complaints against the store? If so, how have they been resolved?
Holiday shoppers should also be on top of key provisions in layaway plans, such as when payments are due and what happens if they miss a payment. Will there be any penalties? Another key question to ask: “Can I get a refund or store credit if I no longer want the item after making a few payments?” Buyers also should ask what happens if the item goes on sale after they have put it on layaway.
The BBB reminds all of us that it’s always a good idea to shop around for the best deal on merchandise. Likewise, before holiday shopping, it’s best to seek out a layaway plan that has the most favorable terms.