Kmart Launches Free Layaway Program

Layaway, which was all but dead a decade ago, is increasingly the competitive weapon of choice for discount retailers. Kmart is wrapping up a no-down-payment layaway promotion for loyalty customers that appears specifically designed to undercut Walmart’s layaway.

Under the Kmart layaway deal, which was scheduled to run from Aug. 31 to Sept. 20, there’s no service fee and no down payment required for members of the Shop Your Way loyalty program. That’s a better deal than Walmart’s layaway terms of no service fee and $10 or 10 percent down. Usually, Walmart’s terms are better than Kmart’s standard $5-$10 service fee and $15-$30 or 10 percent down payment.

The Kmart layaway deal overlapped its back-to-school season — “We know it’s early,” said Jai Holtz, VP of financial services for Sears Holdings, which own Kmart — and even rolled out a too-early-for-Christmas TV ad making fun of the idea of out-of-season holiday shopping. (Kmart ran a similar ad in 2013, when it ran an ad for no-service-fee Christmas layaway in early September that Advertising Age called “unprecedented” as the earliest holiday ad ever.)

But that’s unavoidable for layaway, which typically uses an 8- or 12-week payment contract before the customer can collect the merchandise. A customer who starts a 12-week layaway contract on Sept. 20 won’t make the last payment until Dec. 13, deep into the holiday selling season.

The need to get customers thinking about holiday shopping months in advance is part of the reason that by 2006 Walmart and other large chains had ended their layaway programs. Another factor was easier credit, since layaway became popular during the Depression for shoppers who had couldn’t buy on time. By the 1980s, that wasn’t much of a problem.

The recession reversed that, as even customers with credit wanted to pay down their debt, and the number of unbanked and underbanked consumers rose to 25 percent of households. Sears and TJ Maxx brought back layaway in 2009, and Walmart revived it in 2011. It’s still spreading among retail chains and across channels: This year Toys’R’Us has added online layaway (with a down payment but no service fee).

Since then, chains have been driving down the costs for what is essentially reverse credit, and tweaking terms that cut the profitability of layaway programs but instead position them as promotions or loyalty-program extensions. In Kmart’s case, more than 70 percent of its sales are already from loyalty program members.

Walmart, which has no loyalty program, can only compete on service fees, down payments and cancellation fees. In 2012 the chain kept its initial service fee but eliminated cancellation fees; it reversed course in 2013 to kill the initial service fee but reinstate the cancellation fee, after concluding that it wanted customers to get into the program but not to quit without paying for the merchandise.