Safe keeping

The credit crunch is bringing back an old payment strategy for the holidays: layaway. A pay-over-time strategy first popularized during the Great Depression, layaway allows customers to put a down payment on regular store purchases – from winter coats to Christmas gifts – and pay them off over time, for a relatively small fee.

The practice has disappeared at many retailers, as easy credit made it seem obsolete to many customers. But at the stores that offer it – including chains such as Kmart and the Burlington Coat Factory, and Spokane’s General Store – officials say demand for the practice is stronger than it’s been in years.

“Given a lot of things that have been happening, we’ve seen our layaways increase quite a bit,” said Bob Ramey, manager of the Burlington Coat Factory in Spokane. “I think a lot of it is due to economics.”

Q: How does it work?

A: Layaway reverses the dynamic of credit purchases – in which you get what you want now and pay for it later. With layaway, you pay over time but don’t get the item until it’s paid in full.

Customers put up a small fee and down payment, and the store will hold the item while they make payments. At Kmart, customers pay a $5 fee and $10 cancellation fee in advance; they pay $15, or 10 percent of the item’s cost to open an account, whichever is greater. There’s often a time limit – Kmart offers layaway for eight weeks, while Burlington Coat Factory holds items for a month.

Q: How widespread is it?

A: Not very. Most local stores contacted don’t offer the practice, and few chains do. Wal-Mart eliminated it in 2006, citing declining use and rising costs. Kmart is making the payment plan a focus of its holiday marketing this year, trying to capitalize on the tough environment for credit – particularly among people struggling to get by. Company spokesman Mark Snyder told the Wall Street Journal, “while not sexy, layaway became the big idea for Kmart these holidays.”

A few online Web sites have sprung up that allow people to buy on layaway plans, such as Lay-Away.com and eLayaway.

Q: Why now?

A: Credit card companies are making all kinds of changes that could affect consumers on the lower end of the income scale. The companies are lowering credit limits, raising rates, denying credit and otherwise making credit less available and more expensive. Retailers also say customers are spooked by the general state of the economy and want to avoid carrying debt.

“We have people who use layaway year in, year out, month in, month out,” said Jay Patterson, manager of the Kmart on Division Street in Spokane. “Now, a lot more people are using layaway because their credit cards are maxed out or they don’t want to pay 25 percent interest.”

Q: Is it a better deal than using a credit card?

A: It depends. In most cases, it’s probably a better deal than carrying the purchase as a credit-card balance – though you’ll have to do your own calculations about the value of your time spent returning to the store and making additional payments. Someone who uses a card to buy the item and pays it off right away, though, would pay no interest.

Q: Is there a layaway season?

A: Right now. Retailers say layaway use is high as people try to spread out their holiday spending. “Christmas gets more expensive every year,” Patterson said.