Layaway

Layaway refers to a deferred payment plan in which the customer pays for merchandise in installments or deposits for later purchase. The retailer reserves or lays the product away and stores it for a pre-determined period once the buyer makes the initial payment. The customer gets the article of merchandise from the store after paying the final amount.

This delayed payment method attracts low-income consumers who are ineligible for credit cards or in-store purchases or have bad credit. Also, it involves an interest-free payment and is not considered a debt. Hence, defaulting on a layaway plan does not affect the consumer credit score. The scheme is ideal in cases where a product is high in demand.

• Layaway is a method of financing a purchase at a retail store. The buyer reserves the merchandise by paying an initial deposit and picks it up from the store after making the full payment.
• It is an interest-free payment and proves to be the best option for an expensive purchase by shoppers with limited disposable income.
• Retail or e-commerce websites revamped the scheme and receive scheduled payments from the buyer until the latter makes full payment.
• The concept relieves the customer of debt and the burden of high credit card interest payments.

Layaway is one of the oldest retail marketing techniques. It acts as a purchasing agreement, allowing the customer to reserve the merchandise for an upfront deposit and own it after clearing the balance. The seller then lays the product away in storage for a specified duration till it receives the complete payment. It may, however, levy a fee. If the transaction fails somehow, the customer will get the total or partial or zero return, depending on the store's policy.

Nowadays, customers can spot good deferred payment deals on special occasions like Black Friday and Cyber Monday. For example, products available on layaway at Walmart during the holiday season include electronics, toys, sports goods, small appliances, etc. However, some of its stores offer an all-year-round layaway plan on purchasing select items like jewelry.

Recently, emerging fintechs have started offering a unique type of layaway services. They are providing customers interest-free loans to pay off smaller purchases in installments. This strategy, however, is one step ahead of traditional delayed payment programs as customers here get the product even before making the full payment. It is proving to be an attractive scheme for millennials who do not own any credit cards.

The basic steps that many layaway stores follow are:

• The customer picks the items available on installment payments like jewelry, cosmetics, and electronics in a store.
• The customer makes the down payment or pays an initial deposit - a flat rate or a percentage of the total purchase price.
• The seller stores the product for a pre-determined period and charges a deferred payment fee.
• The consumer chooses weekly, biweekly, or monthly payment plans based on their disposable income, the product price, or the store’s policy.
• The buyer picks up or receives the product from the store on making the full payment.

The buyer must first understand the store’s policies to gain knowledge of its delayed payment scheme. It can provide details like the minimum upfront payment or installment, payment duration (weekly or monthly, etc.), and the criteria for missed or delayed payments.

The customer also needs to be aware of the refund policy for discontinuing the layaway. For instance, some sellers guarantee money back while others charge a non-refundable service fee.

The advent of online commerce has revamped deferred payment schemes for retailers. With online layaway, customers can enjoy a stress-free shopping experience. It also benefits consumers with poor credit and who do not want to choose traditional financing or do not want to add to their credit card debt.

Here, the e-retailer receives scheduled payments from the buyer until the latter makes full payment. Till then, the product remains in the distribution center for the agreed period. The customer picks up the product from the retailer on completing the scheduled payments. Since e-commerce eliminates the need for the retailer to display products in physical stores, it removes associated storage costs.

Merchants that offer online deferred payment plans include Burlington, Big Lots, Kmart, Marshalls, T.J. Maxx, Sears, Hallmark Gold Crown, etc. Customers can avail of online delayed payment plans on products like baby car seats, computers, fitness equipment, furniture, mattresses, concert and event tickets, outdoor supplies, automobiles, homes, vacations, and so on.

Pros

• The deferred payment method is the ideal alternative for low-income individuals who cannot make a single payment.
• It lets customers spread out payments for an expensive item over time.
• Customers need not pay interest on the purchase price.
• The delayed payment plan provides the retailer a lucrative business opportunity.
• It relieves the customer from the debt and stress of paying high credit card interest. It, thus, avoids a negative impact on the credit score.
• Retailers do not perform strict credit checks (credit history) on the buyer.
• Layaway stores require the customer to submit identity proof and a minimum deposit only.
• A minimal service fee incurs for the storage of the product.
• The installment plan helps the buyer save money by not paying the final amount immediately.
• It allows interest-free shopping during holidays and special occasions, such as Black Friday, Cyber Monday, and New Year’s Eve.
• Customers get a hassle-free shopping experience with online delayed payment plans as they do not have to wait in lines or physically visit stores to get the items they want.
• The shopper can lock a high-demand product, ensuring the product’s availability during the purchase.

Cons

• Many delayed payment plans are strict towards the down payment and scheduled payment.
• If a customer wants to opt out of the scheme or cannot complete the layaway payment, the store may impose additional fees for cancellation, restocking, and storage.
• The customer may get a full, partial, or zero return for discontinuing the plan, depending on the store’s policy.
• Minimum initial deposits can be high.
• It requires the customer to adhere to the purchase price of the product. It means customers will not be able to avail discounts in case of special or clearance sales.
• The seller may restrict purchases eligible for the deferred payment program.
• The interest-free payment option encourages people to shop for more items. Eventually, it reduces consumer savings.
• The retailer may impose an additional delayed payment fee on the total payment.
• Not all stores, products, or seasons offer the installment payment option.

Layaway became a common shopping phenomenon during the 1930s when Great Depression adversely affected the world countries. People were facing difficulties paying for the household finances and were unable to pay the high debt interest rates. During such periods, the layaway payment plan emerged as a more affordable and convenient option for managing expensive purchases.

It allowed customers to make payments in small deposits. For many years, the deferred payment plan gained popularity and availability in major retail outlets. However, the rise of credit cards in the 1980s and 1990s knocked the scheme off the market for a long time. But the financial crisis of 2008 and increased consumer credit limits made many retailers reintroduce delayed payment services to attract consumers facing financial difficulties.

This has been a guide to what is layaway and its meaning. Here we discuss how does this plan work online, along with its history, pros and cons. You can learn more from the following articles -

• Same Store Sales
• Mass Customization
• Hard Sell