Layaway Programs Come Back Into Style

This holiday season, retailers are offering maxed-out consumers an old-school solution: layaway.

Kmart, TJ Maxx, and Marshalls are among the stores willing to hold on to purchases while customers pay for them over time. While layaway programs fell out of favor in the mid-2000s as credit cards made it easy for people to get what they wanted right away, they are now making a comeback as the economy slows and credit markets tighten. "Retailers...are using [layaway programs] to their advantage during this holiday season because they know people are on a budget and they don't want to overspend," says Ellen Davis, vice president at the National Retail Federation.

Unlike credit cards, layaway programs charge no interest, but customers are unable to take the items home until they've paid in full. Most programs charge a minimal fee, usually around $5, and require customers to pay within a set time period, such as 30 days. If customers are unable to complete the payment, retailers usually give a full refund after subtracting the small fee.

Davis says that in addition to helping consumers who lack checking accounts or credit cards, it also enables parents to hide presents from curious children.

Retailers are eager to do whatever it takes to lure customers back into stores. Earlier this month, the Commerce Department announced that September retail sales were down 1.2 percent. Kmart, one of the retailers that offer layaway, says it might be working. "We've seen an increase in people interested and inquiring about layaway," says Kimberly Freely, Kmart spokeswoman.

If you're looking to avoid debt and stretch out payments, here's an overview of retailer offerings:

• Kmart is so eager for shoppers to take advantage of its layaway program, which has been around for over 40 years, that the company made layaway a centerpiece of its Christmas marketing campaign. Kmart offers an eight-week contract for a $5 service fee and $10 cancellation fee, which is refunded when the item is paid for in full. Stores require a 10 percent down payment and usually arrange a biweekly payment schedule. The only restrictions? No consumable goods, prescription medication, or anything else with a date on it. Also, holiday decorations must be paid in full by December 5.

• At sister company Sears, customers can put fine jewelry into layaway, but nothing else—so no dishwashers or clothes. There's a $50 minimum purchase and customers have 90 days to pay off their balance.

• The TJ Maxx locations that offer layaway (and not all of them do) require a 10 percent down payment and don't accept jewelry or clearance items. The fee varies by location but is usually around $5. Customers must pay off the entire balance and take home their merchandize within 30 days.

• Since Marshalls is owned by the same company as TJ Maxx, similar policies apply: $5, 30 days, 10 percent down. And call ahead, because only certain locations offer layaway.

• Websites such as elayaway.com make it easy for consumers to put items from smaller stores on layaway. Computers, kitchen supplies, and even plastic surgery treatments are available from over 1,000 merchants. Shoppers pay a 1.9 percent fee per transaction and $25 for cancellations. Merchants set their own time limits, but the average layaway period is three and half months. The site has almost doubled in popularity since last year, says senior vice president of business development Michael Bilello.

• The biggest retailer, Wal-Mart, canceled its layaway program in 2006 and says it has no plans to revive it. Customers are also out of luck at JC Penney and Target. Wal-Mart spokeswoman Ashley Hardie says layaway programs are expensive and ultimately force stores to raise their prices.