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Retailers Use Layaway to Lure Shoppers

To afford Nintendo Wii video game systems for her son and daughter, Cheryl Kingsley had to buy now and pay later.

But she didn't use a credit card. Instead, the Bear, Del., resident paid on installments the old-fashioned way - with layaway.

"I used layaway years ago when my kids were little," said Kingsley, 54, who made her final payments and picked up the Christmas gifts at Kmart last week, granddaughter Amiley, 4, in tow.

For the first time in a long time, layaway is being talked about for reasons other than its demise at the mercy of credit cards. The service is the centerpiece of yuletide sales pitches at chains including Sears and Toys R Us, as retailers try to counteract recession weary customers' hesitance to spend extravagantly.

While many jewelry stores and other locally owned-shops have consistently offered the service and layaway has been a mainstay at Kmart, this year, TJ Maxx, Marshall's, Toys R Us and Burlington Coat Factory are among the national chains that brought back some form of layaway. Kmart and Sears introduced online layaway this year and there are also several Web-only layaway services, including eLayaway.com and Lay-Away.com.

"The magic of credit cards has faded and we've all come to not believe in Tinkerbell," said Meryl Gardner, a marketing professor at the University of Delaware. "If we can't use that magic, what can we use? For some people, layaway could be the answer and for other people it's going to be spending less or using cash or giving a gift that doesn't require money."

Immediately after finishing the early-morning shift at her job last week, Brenda Waters-Wall drove to a Kmart store in Pike Creek, Del., to get a jump start on her holiday shopping.

Some of the gifts were for her 3-year-old grandson. The rest were for friends and children Waters-Wall knows from her Pike Creek neighborhood and from church. By 10 a.m., her cart was piled high with dolls, games, clothing and kitchen gadgets, and she was headed straight for the layaway counter at the back of the store.

"Every year I do shopping for the community, for kids I know that have been good," Waters-Wall said. "I probably wouldn't do it if it wasn't for layaway. I wouldn't be able to do it."

All stores handle the service a little differently, but the concept of layaway has been around in some form or another since the 1920s and 1930s.

Customers pick out purchases and pay a small percentage of the cost up front. The items are taken off the sales floor and stored. Then the buyer pays off the rest of the cost in interest-free payments spread out over several weeks or a few months. Once the final installment is paid, the customer is free to take the goods home.

Store manager John Murray had Waters-Wall pegged for a layaway customer as soon as he laid eyes on her overflowing cart. He said volume in layaway is up about 20 percent this year at his store and at Kmart and Sears stores nationwide.

"It helps business tremendously," Murray said. "It's creates a niche for us."

A way to stand out

Prior to the economic downturn it looked as if layaway might become a relic of the past. Walmart did away with the service after the 2006 holiday season; at many other major retailers, the service had fallen victim to customer disinterest years earlier.

Layaway helps customers avoid interest payments that come with credit card purchases. But most retailers charge an initiation fee with the transaction and require that customers pay a certain percentage of the item's cost up front. There also may be rules for how much time a customer has to pay off a layaway item, fines for missed payments and cancellation charges if the buyer decides not to go through with the purchase.

Although layaway is playing a prominent role in some retailers holiday advertising, the overall market for the service still is relatively small.

"Is this a wide-sweeping trend taking the retail industry by storm? No," said Ellen Davis, vice president of the National Retail Federation. "Most people will still pay for holiday gifts with cash, debit cards or credit cards."

In a holiday season where every retailer "is trying to be a discounter," layaway is one way retailers can make themselves stand out, Davis said.

"I think retailers that offer layaway now would say it's very important, even if it might just be a fraction of their business," Davis said. "They think it's helping to bring in new customers, helping to differentiate them from their competitors or allowing some shoppers to spend more because they can pay it off over a longer period of time."

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