Amid the current economic crisis, some retail experts believe that retailers aiming at wooing more consumers into the store during the upcoming holiday season may want to provide the layaway payment plan to needy consumers. This plan will allow shoppers to reserve craved merchandise while unable to pay right away. The layaway plan may have several benefits to retailers offering them:
First, with its help, certain customers would be able to buy the merchandise that they would otherwise not be able to, and that would translate into more sales. Furthermore, the customer may evermore appreciate the additional service, as this purchase might be one of major emotional and psychological import, such as a wedding ring. When good times come, the appreciative shopper may pay back to the store by becoming a more loyal customer.
Second, the customer would need to pay at least one more trip to the retailer to pick up the merchandise once all payments are made. This means more traffic into the store and chances are that the shopper will purchase some additional products, while there on the second trip. Increased store traffic will also have psychological impacts on other shoppers and even on store employees. In this holiday season, store traffic is a hot commodity for retails large and small.
Third, the layaway plan offers a less risky financing alternative to the retailer than does store credit card issuance, because the retailer sets the rules and the regulations are not as stringent as in the case of credit card issuance and compliance is easier. In the case of approving credit cards, the borrower could default on payments and declare bankruptcy, causing major losses to issuers. Whereas in layaway, the retailer can simply forfeit the deposit and return the laid-away merchandise back to the store shelf.
Fourth, this plan is all about providing delayed gratification to the consumers (and their beloved ones for gift purchases) and will encourage the customers to do more responsible budgeting. In this way, I consider the layaway plan a socially responsible response to the economic crisis, given that reckless spending among consumers and homebuyers is widely regarded as one of root causes for the crisis.
For the downside, instituting the plan might involve personnel, legal and administrative expenses for the retailer—and unless demand for the service is sizable, the expenses may be hard to justify. Also, a successful and well-utilized layaway plan may necessarily cause strain on the inventory space and make some merchandise unavailable to those shoppers who are able to pay on the spot. Finally, this plan may make most sense in geographic areas where the impacts of the economic crisis have taken a bigger toll.
Tony Gao, Ph.D., is a marketing professor at Northeastern University’s business school.
Tags: , business school, christmas shopping, customers, economy, Electronic Retailer, lawaway, merchandise, northeastern, retailers, tony gao
The problem here is that while lay-away is a very good deal for the retailer (For all the reasons you mentioned) it is an awful deal for the consumer.
You are paying someone on a lay-away deal; but you don’t have the actual item yet. If the retailer goes bankrupt you become just another creditor. You lose the choice of the better; newer item once that becomes available; instead you are “married” to the older inferior model that the retailer now can’t sell anymore either…
Although good for the retailer and although It might work for some people, don’t ever forget that it is a BAD deal for that consumer.
Hajo Smulders
@Hajo Smulders-
I don’t understand your logic about how this is bad for the consumer.
Of course you are paying someone without having the item, that is why it is a layaway. They are in turn taking the item off the shelf and holding it for you until it is paid for. They aren’t able to sell it to anyone else unless you never pay off the layaway and forfeit your payments.
Yes, you lose the choice of the new shinier model, but how long of a layaway are you talking about anyway? Unless you are putting a new Mac on layaway, I wouldn’t be too concerned about it being seriously outdated in the span of 6-12 months.
The best point you make is that if the company goes under, you are SOL.
This plan is awful.
We are in a financial crisis because the average consumer is saddled with debt. Financial institutions are collapsing because the average consumer could not actually shoulder that debt. You are advocating extending the exact same sort of credit instruments to unqualified buyers as the ones that caused this crisis. Have you been living under a rock?
If you can’t afford it, don’t buy it.
Tony makes a great case. However, there are some large retailers that are currently offering layaway - Sears and K-Mart.
We all need to remember that not everyone has disposable income. Some people have had their credit card limits reduced or cancelled all together. Some people have lost their jobs, had their salaries reduced or had their hours cut back. For some, the only way they can provide Christmas for their children is through layaway.
Remember, with layaway they have to pay for the product in full before they can take it home….can you say “Pay as you go?”
How could we verify the effectiveness of such a possibility?