Consumer Corner: Layaway makes a comeback but is it really a good deal for hard-pressed consumers?

CHICAGO, Nov. 13 (UPI) -- A funny thing is happening on the way to the cash register -- more stores are offering layaway as a means to entice consumers not only to get their holiday shopping done early but to boost sales overall.

Layaway was once a popular way to shop but went away in the 1970s as credit cards gained popularity. Once bank cards became all the rage, consumers showed their preference for charging it and taking their purchases home immediately rather than paying a little every week and waiting until the item was paid off.

With the collapse of the real estate bubble and the ensuing recession, Walmart, Kmart and other major retailers have decided to turn back the clock and give younger consumers a taste of delayed gratification.

Walmart's Christmas layaway program begins Thursday and applies to electronics, toys and jewelry costing at least $15. Items must be paid off by Dec. 16 and picked up. The program requires 10 percent down and a $5 service fee. If a consumer doesn't pay off the balance, Walmart said it will refund all but $10.

Kmart and Sears have similar programs. Kmart has a $5 service fee and $10 cancellation fee, requiring a $15 or 10 percent down payment. Sears has a $5 service fee, a $15 cancellation fee and $20 or 20 percent down payment. Their programs apply to virtually all merchandise and require bi-weekly payments during the programs' 8-week run. There are also 12-week options.

The Web site elayaway.com sets up payment plans for online purchases at such etailers as Best Buy, JoAnn Fabrics and ebags. Elayaway has set up its own "mall" with everything from gift cards to cruises from 1,000 merchants. The site even touts itself as a way for consumers to improve their credit scores.

Hallmark is leaving layaway policies up to individual stores and discounters Marshall's and TJ Maxx are offering 30-day plans at only some stores. Toys 'R Us started offering 90-day layaway on big-ticket items several weeks ago, requiring half the total to be paid within 45 days.

The idea of having bills paid off before the wrapping paper is torn off may be attractive but experts say it could wind up costing consumers more than if they had just whipped out the plastic.

"Suppose a consumer puts $100 of Christmas gifts on layaway at Thanksgiving for pickup on Dec. 24. She pays $20 down and $20 each week and a $10 service fee up front. That's $10 on an $80 loan for one month, which is about 44 percent interest on an annualized basis," Richard Feinberg of the Purdue University Retail Institute said in a release.

"These consumers have the perception that layaway is 'cheaper' than credit card payments since they pay finance charges on credit cards monthly," he added in an e-mail exchange. "When told that they are actually paying more for layaway than they would for paying it all off on a credit card in 6 weeks or whatever they literally do not believe me even after I explain the upfront fee and the APR (annual percentage rate) that that fee works out too.

"These consumers are very pressed financially and see layaway as a 'wonderful alternative' and are 'thankful' that they have the option to do this at Walmart and Kmart and other stores."

In addition to the lucrative fees, retailers see layaway as a means of luring consumers into stores and enticing them to buy more than what they had planned -- after all they don't have to fork over the total amount that day.

"It is not the layaway that causes spending but being in the store and seeing things that you were not aware of that might induce you to spend more than you had planned," Feinberg said. "The layaway gets the consumer into the store. Then it is up to the store to present merchandise in a way that speaks to the customer."

And Feinberg noted, every time the consumer goes into the store to make a payment, there's the chance that consumer will do a bit more shopping.

Feinberg said consumers have been using their debit cards more than their credit cards of late, largely because the economy remains so sluggish.

"The miracle is that despite financial pressures and 9 percent unemployment, 7 percent underemployment, that consumer spending is rising each quarter," he said. "I call this this year's Christmas miracle. Imagine how healthy our economy would be if we could cut that 16 percent un/underemployment in half and that money was spent in the retail economy."