Is Holiday Layaway a Predatory System?

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If you’re looking for a new genre of heartwarming YouTube video, may we suggest searching "layaway angels"? This will lead you to dozens of clips, many of them local news segments, about good samaritans who visit stores during the holidays and pay off shoppers’ layaway balances. Like a scene out of a Hallmark Channel Christmas movie, a frequently anonymous donor will contribute $12,000, $20,000, $50,000 of his or her own money to help strangers who have put gifts on hold have a happy holiday. Hugs and tears often ensue. In Indiana, after paying off all the layaways, one "angel" walked around a Kmart just handing out $50 bills. The clear implication of these videos is that the Christmas spirit is alive and well.

Angels are just one part of the larger story of layaway, a retail strategy that, while not used by most people, describes the shopping habits of a significant segment of Americans. The principle is simple: Reserve an item without putting its total cost down, and take it home once you’ve paid it off in full, hopefully in time to shower your loved ones with gifts for Christmas or the holiday of your choice. Though some stores have online, mobile, and other newfangled components these days, layaway is an old-fashioned idea, associated with the scrimping and saving of the Great Depression, and in more modern times, the realities of living on a budget.

Over the past five years, a narrative emerged that the recession had brought back layaway services, which had been popular during the 20th century but declined with the rise of credit cards. Although the economy has improved in the intervening years, layaway programs have persisted in many stores, proving more than anything else to be an important marketing tool for retailers to lure customers during the holiday season.

Walmart, Kmart, Toys R Us, Burlington Coat Factory, and Marshalls are among the stores that offer layaway plans. Walmart discontinued layaway in 2006 but reintroduced it in 2011, and since then has continued to tweak its plan each year. This year’s innovation was kicking off its holiday season and layaway program at the end of August. Kmart, part of Sears Holdings, has always had layaway, and in contrast some of its competitors, offers it all year. The details of the plans differ from company to company — whether a down payment is required and if so, how much, whether there are cancellation fees, how often contributions must be made, etc.

According to a National Retail Federation survey, 7% of consumers cite the availability of layaway services as one of the most important factors in deciding where to shop, and 5% said they began shopping for the holidays in October or prior in order to take advantage of layaway programs. "It’s used by all levels of consumer," said NRF spokeswoman Kathy Grannis Allen. "Companies started realizing that this service was a tremendous value for all of their shoppers who were shopping on a budget. The recession affected everyone."

"I think people are still concerned about overspending, they’re concerned about what’s going to happen next, and layaway is pretty tried and true," added Joe Valenti, director of consumer finance at the left-leaning Center for American Progress.

Low-income shoppers tend to have financial situations that make layaway a particularly natural fit for them. They are more likely, for instance, not to have credit cards, bank accounts, and other financial tools that the rest of the population takes for granted. "It’s definitely something that appeals to people who may not have a lot of money, may not have strong access to credit, and are looking for something that’s pretty reliable," Valenti said. "I think you also see that in the types of stores that tend to offer it. It’s not something you’re going to see at the top end of the market because people will be using credit cards or will be using other products."

If you Google "layaway," you’ll find a bevy of advice warning against it. "Will You Fall for the Layaway Trap This Year?" asks a Daily Finance article from September. "Layaway can be a great deal when it works. It doesn’t always work. There are a few things that can go wrong during the process," Valenti said, citing shoppers not getting the exact products they reserved, cancellation penalties, and other consequences, all of which are examples of the ways that it’s expensive to be poor. Experts advise that shoppers be very aware of what they’re getting into with any particular layaway plan.

For Kmart, layaway is a key part of the company’s holiday strategy as well as a way to set itself apart from other retailers. "Every year we try to have some fun with it, get out there, really encourage people to use this as a way to shop earlier, make sure that they can get their products, that the hot toys aren’t sold out when they’re looking for them, etcetera," said Jai Holtz, president of financial services at Sears Holdings. This year, from the beginning of September through the Sunday after Thanksgiving, Kmart is letting customers put items on layaway for no money down for the first two weeks. Holtz added that Kmart offers very few restrictions on what can be put on layaway —sale items and Black Friday doorbusters are fair game. The goal, Holtz said, is to provide customers with the "ultimate flexibility." From the sound of it, the approach is working: "We see a higher basket when we run the no-money-down, and we see individuals who haven’t done layaway in the past really trying it for the first time," Holtz said.

Holtz declined to provide specifics on what portion of its sales come from layaway but noted, "It is a significant driver of business at Kmart. It is a service that we don’t see any time in the near future even considering removing."

And as layaway continues to be a profitable draw for stores, the layaway angels will remain a popular tradition with stores, patrons, and local news stations alike. Cathy O’Grady of Watertown, Massachusetts, runs a charity focused on random acts of kindness called Sofia’s Angels. She had heard of people paying off layaway plans as layaway angels, but "I never thought I would be one," O’Grady said. That is, until last year, when she was able to pay off about $20,000 in other people’s layaway fees at Toys R Us.

O’Grady recalled one woman who had come to the store to cancel her layaway purchases. She had to be told three times that she didn’t have to, that her bill had been paid. "That’s when I lost it," O’Grady said. "She came around and she hugged me and she kissed me and she said thank you. That’s when I said, ‘Hurry up, I need to get out of here before I do the ugly snot cry.’"

New Yorker Lee Karchawer founded a charity called Pay Away the Layaway to crowdsource money to fund layaway angel missions in 2011. He read an article about an anonymous layaway angel and was inspired to do something similar — but lacked the thousands of dollars to make it happen. After raising several thousand dollars in its first few seasons, last year the organization raised $60,000 in crowdfunding, most of it from relatively small donations, Karchawer said. When it comes time to dole out the money, "We work very closely with Kmart, Toys R Us, Walmart, and Babies R Us, and we identify stores that are in typically lower-income neighborhoods to help families that are struggling to pay for gifts for their kids during the holidays," Karchawer said. He added that part of the organization’s promise to those who donate is that their money will only go toward paying for items for children. "Being able to be there and give that person a hug and let them know that things are gonna get better and we’re trying to at least alleviate one thing, that maybe they can take that money now and buy groceries… that’s kind of what our organization’s really all about." This year, in addition to the holiday season, Pay Away the Layaway experimented with paying off some layaway contracts for families buying back-to-school supplies.

Layaway angels make for a convenient, feel-good story in the media, so it’s no surprise that stores have embraced them. Kmart frequently works with Pay Away the Layaway, for example, to arrange for news media to be on hand when the organization makes its store visits. "We absolutely thank and love our layaway angels," Holtz, the Kmart executive, said. "The idea of charity during the holidays especially for layaway, it’s a great feeling, we love seeing it. Our store associates get so excited."

As inspiring (and tearjerking) as the layaway angels’ generosity can be, Valenti made a point about their context in our overall economy: "It would be great if we were in an environment where people felt like their incomes were sufficient and the wages were higher, where folks wouldn’t be so concerned about their finances and where it wouldn’t necessarily take acts of charity for people to get things that in some cases may be really important or maybe essential." How angelic that would be.