Kmart Beefs Up Layaway Plan Eyeing Early Holiday Demand

Shoppers Inside A Kmart Store Ahead Of Black Friday Sales
Luke Sharrett/Bloomberg via Getty Images

By Nathan Layne

Kmart has expanded its layaway program and dropped a required down payment on a lease-to-own plan, joining other U.S. retailers in trying to get a jump start on grabbing holiday shoppers.

Kmart, a unit of Sears Holdings (SHLD), started allowing customers to buy in installments with no down payment last week, an option it will offer every day through the end of November.

During last year's holiday season it limited the no-money-down option to certain weeks, said Jai Holtz, president of financial services at Sears.

%VIRTUAL-pullquote-There is absolutely a trend to an earlier holiday. And so we are trying to meet that demand.%Kmart is also allowing customers to tap its rent-to-own program without a down payment for big-ticket items such as refrigerators and televisions for the first time since it was launched in 2013. The option also runs through the end of November.

The moves by Kmart come as rivals try to capture holiday business. Walmart Stores (WMT) started its layaway program in late August, two weeks earlier than 2014. The largest Texas supermarket chain, H-E-B, which also sells toys and appliances, has also launched a layaway plan and related promotions.

"There is absolutely a trend to an earlier holiday. And so we are trying to meet that demand," Sears' Holtz said, noting research by the National Retail Federation showed more than 40 percent of Americans begin holiday shopping prior to October.

Holtz said toys, electronics and apparel were among the top categories in layaway. While many customers used the program to budget their spending, others use it to store toys that might be discovered by kids if they were in the house, Holtz said.

The leasing program has a minimum purchase of $69 and ownership can come at a cost. Using a calculator on Kmart's website, a customer seeking to buy an item worth $500 would end up paying $692 to buy out the lease after financing it over five months.

Holtz said the company had devised early-purchase options at 30, 60 and 90 days that would limit the premium paid over the initial price.

Similar to Walmart, Kmart's customer base tends to skew toward the lower end of the income scale.

Holtz said the layaway and leasing program were designed to tap into demand at various income levels.

"We see a great layaway business in our Beverly Hills Kmart store. This is a program that goes across all demographics," he said.