According to a recent article in the New York Times (“Walmart to bring back layaway for the holidays,”), Walmart is bringing back their “layaway” payment program, where customers can set aside big purchases at the back of the store and pay for them in advance, over a period of several months. This is a pretty significant sign of just how cash-strapped consumers are feeling in the present economic climate.

Layaway is a rather old-fashioned concept in retail, dating back to an earlier era in American consumerism, when credit cards were scarce and people were expected to pay cash for even big-ticket purchases like appliances.

During the years of America’s credit boom, everyone was using credit cards and many retail analysts thought that layaway was obsolete. Walmart discontinued its layaway program back in December 2006, saying that most of its shoppers were using credit cards or gift cards when they couldn’t pay cash.

Walmart is not the first retailer to re-introduce layaway. Toys “R” Us brought back layaway on high-priced items in 2009, and Sears started offering layaway again in 2008. Instead of charging interest, layaway programs typically charge a service fee. For example, Walmart’s layaway program requires a $50 minimum purchase, a 10% down payment, and a $5 service fee.

3 Key Lessons that Businesses can Learn from Retailers Bringing Back Layaway:

  • Listen to your customers. Walmart is bringing back layaway in response to demand for customers – people wanted another option to pay for their purchases. This might sound obvious, but many companies overlook it: give your customers what they want. Listen to their feedback. When customers care enough about your company that they offer suggestions for how you can help them, that is a positive sign. Offering layaway is not a cost-free proposition for Walmart. Surely there are some costs involved with storing the layaway items and keeping track of payments. But it seems like the costs are worth paying if you can keep your customers happy.
  • Get creative with financing. Right now, there are a lot of people in America who are really struggling. Consumer behavior has changed dramatically in the past three years, especially for the segments of U.S. society that have been hardest-hit by the recession. If you sell to the middle-class/working-class consumer market, you might need to be creative about how to sell to them, or how to take payments. Depending on what you sell, could you offer your customers more flexible payment arrangements? How could you do “layaway” in your own business? This works for B2B sales as well as business-to-consumer; creative financing options are definitely in vogue in the B2B world. My consulting firm has even done flexible payment schedules for some of our clients.
  • Help your customers feel “richer” than they are. Some customers who are going through hard times might be reluctant to buy items on layaway; it might feel like there is some stigma attached. There are a lot of families out there who had good jobs and disposable income 4 or 5 years ago, but who are now struggling to have any money left at the end of the month. There are millions of consumers who have gone from “trading up” for aspirational purchases to “trading down” for bargains. Perhaps Walmart and other retailers should consider rebranding layaway. Give it a new name, like “Pay in Advance,” “Advance Payment Express,” or “Smart Budget Buying.”

Choice of words matters. If retailers can make layaway sound more like something that people are choosing to do – in a proactive, energetic way – rather than something they’re being forced into because they don’t have enough money, then that might resonate with the mindset that these customers want to have about themselves. Even if they’re going through tough times, no one wants to feel “poor.” Retailers should try to make people feel good about using layaway, and make them feel smart about managing their budgets.

Photo from ABC News

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