Layaway Makes a Comeback This Holiday Season

This holiday season, retailers are turning a bright spotlight on store layaway programs.

Beginning Oct. 15, Toys R Us is extending its layaway program beyond big ticket gift items like bikes and swing sets to include nearly all merchandise in 400 of its 600 stores.

Wal-Mart is relaunching layaway this month after cutting the program in 2006.

Meanwhile, sister retailers Sears and Kmart (SHLD) have declared Oct. 3 through Oct. 7 National Layaway Week in a bid to highlight their in-store and online layaway programs and remind shoppers to start their holiday layaway contracts.

With Americans' budgets squeezed, more consumers will turn to layaway programs -- which allow shoppers to make payments in installments -- this gift-giving season, according to a survey released this week by ConsumerSearch.com, a web site that conducts product research for consumers.

A majority (71%) of the 1,011 of consumers polled said they are open to using layaway programs in the next six months, and 42% said they'll do so for holiday gift purchases.

More than one-third (35%) of respondents cheered retailers for bringing back layaway programs, which offer another payment option, help them afford an item that would be otherwise be too pricey, and help them stick to a budget, consumers said, citing their top reasons for tapping the layaway option.

And it's not just lower income consumers who are inclined to pay-as-they-go, the survey revealed.

Consumers with household incomes under and over $40,000 are almost equally disposed to use layaway in the next six months, the survey showed.

A Sign of Hard Times

So why a return to layaway at this stage of the post-recession period?

Although the Great Recession was declared officially over two years ago, retailers are waking up to the fact that for many people, the economic picture is not getting much better, Howard Davidowitz, chairman of Davidowitz & Associations, a national retail consulting and investment banking firm, tells DailyFinance.

And many Americans "feel like they're living in a depression," he said. "We have 49 million people on food stamps, poverty just hit the highest level it's ever been, and housing values -- consumers' biggest asset -- have seen their greatest drop since the Depression," Davidowitz says.

In turn, "retailers are realizing that there is no turnaround."

Many retailers had eliminated their layaway programs because they can be unprofitable for a merchant, Davidowitz says.

Stores can get stuck with items that shoppers default on, "which often become obsolete, because they're out of season."

What's more, during a period of economic prosperity, layaway seemed like an old-fashioned and outdated retail practice.

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"When times were good, people had nine million credit cards -- so there was no reason for layaway," he said.

"But right now, the credit card companies have become much tougher [about extending credit] and the customer has a desperate need for credit, so back comes layaway."

Since Toys R Us introduced in-store layaway in 2009, thousands of shoppers have participated in the program, Katie Reczek, a Toys R Us spokesperson, tells DailyFinance.

To that end, it's being expanded this year to include nearly everything in the store -- from Barbies to Legos -- as well as big ticket items.

(However, perishable items such as food, formula, beverages and candy, as well as batteries, some seasonal items, apparel and clearance goods, are excluded from the program.)

Toys R Us is also introducing this holiday season an online catalog devoted to highlighting a number of the bigger gifts that can be purchased on layaway, or by using its Bill Me Later online payment option, which kicked off on Sept. 30 and runs through Oct. 22.

Bill Me Later is an online alternative to the in-store layaway program, used by hundreds of online retailers and catalogs, that allows shoppers to make no payments and pay no interest for up to 12 months on purchases of $500 or more that are paid in full in that time frame, or make no payments and pay no interest for up six months on purchases of $100 or more that are paid within that period.

Whatever your payment preference, options abound for holiday shoppers. "We recognize that consumers are looking for ways to stretch their dollar this season," Reczek says.