Retailers Offering Layaway Have Holiday Sales Edge With Consumer Credit, Lending Curbed

October 29, 2008 12:31 p.m. EST

Birmingham, AL (AHN) - The economic crisis is expected to give retailers like Kmart and TJ Maxx an edge in sales this holiday season because those stores offer layaway services, which will come in handy for customers who have had their credit curtailed.

"Companies with layaway programs are essentially offering their customers free credit, and many consumers are likely to take advantage of that in these economic times," Bob Robicheaux, Ph.D., chairman of the University of Alabama Birmingham Department of Marketing and Industrial Distribution, said in a statement. "So I see a distinct advantage for some retailers to capitalize on."

Robicheaux cited a Wall Street Journal report on the hurdles consumers face this holiday season because credit card companies are reducing credit limits and lenders are tightening access to loans because of the ongoing financial crisis.

Although Kmart and TJ Maxx still have layaway programs, many other large retailers, such as Wal-Mart and numerous department stores don't.

Smaller retailers are generally more likely to offer layaway because they often know their customers personally, Robicheaux said.

"People are shying away from credit cards, because maybe their limits have been reduced or they simply don't want to carry any debt ahead of an economic recession," Bob said. "And if a purchase can't be put on credit because it's restricted, then the best option is to use layaway and put $10 dollars down then make equal payments toward the purchase in the weeks before the holidays."

Layaway programs allow shoppers without cash or credit to take advantage of sales by paying a small down payment on items that are then placed in a holding area for the customer until they finish paying for the item in installments. Store began eliminating layaway programs when credit cards became more widely available in the 1990s.