Originally brought to market in the US in the 1930’s (during the Great Depression), layaway came about as a purchasing option in which a consumer pays for goods in installments, and takes the item(s) when the full balance is paid. In the 1980’s layaway offerings fell out of favor as credit cards gained popularity, but in the last 10 years these plans have seen a resurgence. Millennials are particularly in favour of these purchasing plans.

Basics of Layaway

Layaway allows customers without much disposable income to make large purchases in small increments. By entering into a layaway agreement, the merchant puts the item aside as the payments are made, and passes it to the customer once it is paid in full. There is typically a small fee associated with this plan, as the merchant cannot sell the item and needs to hold it in storage until the payments are completed.

Retailers tend to set their own rules and parameters for their layaway programs, but typically they involve the following basics:

• • Select items, enter agreement. Retailers may choose whether there is a minimum purchase amount, and whether all of their items are available for layaway or to include only certain departments (such as housewares, electronics, or jewelry).
  • Confirm with a down payment. The amount of the down payment varies by store – some allow the customer to decide how much they would like to pay, and others charge a set percentage of the purchase total.

• Pay in installments. The frequency of installments – or, small payments – is determined in the agreement. Store policies vary from weekly, biweekly, or even monthly payments.

• Item pickup. Once the final payment is made, the item passes from retailer to happy customer!

Because there is little-to-no risk to the merchant in layaway agreements, customer credit often does not play a role in determining eligibility. This means more people have access to making purchases, including those with lower income, bad or no credit, or without the ability to obtain credit cards (which carry much higher fees).

Costs and Fees

If the transaction is not completed for any reason, the item goes back onto the shelves or into the main available inventory of the retailer. Store policy may be to return the money in full, keep a percentage fee, or to retain all payments made in the case that customer defaults on their agreement.

Layaway agreements may include one or more of the following fees:

• Service Fee. This fee is to cover retailer costs of processing and tracking ongoing payments, and keeping the item(s) in storage and off the shelves.

• Cancellation Fee. This fee is up to the discretion of the retailer. It applies to layaway contracts which are not completed, or if they are not completed by the agreed upon due date.

• Restocking Fee. Some stores choose to apply a restocking fee for items not paid for which need to be returned to inventory.

These fees are up to the discretion of the retailer, and should be clearly laid out in the agreement entered into with the customer.

Benefits to Businesses

Layaway plans avail your products to a broader audience, including those with lower income or less-than-favorable credit histories. Layaway carries limited risk to the retailer, and is a great option for an offering from large-scale businesses as well as small shops. These programs have a strong potential to build brand loyalty (by removing some of the barriers to purchase that some would-be customers may otherwise run into), and bring repeat customers to your business. Layaway agreements can also be offered both in-store and online with ease.

Things to Consider When Creating a Layaway Plan

Interested in creating a layaway plan, and broadening your potential customer base? Here is a quick list of things to consider when developing your layaway plan.

• Create Your Agreement. Create a professionally-worded, legally-binding agreement that clearly communicates the terms and conditions to your customers. You should include things such as minimum price, installment options (frequency and amount), deposit amount, applicable service fees, cancellation and refund policy (including details on what happens in the case of a default), items ineligible for layaway, and the final payment due date.

• Promote Layaway Offering. Don’t underestimate the power of marketing. When you have an offering – especially one that makes customers’ lives easier – don’t be shy to promote it. Leverage social media, your website, and any print advertising or in-store signage to ensure your customers know about layaway. If you have a brick-and-mortar shop, make sure your employees are familiar with the intricacies of layaway and are prepared to talk to customers about it.

• Consider Inventory Levels. Especially during the holiday season, when layaway tends to be even more popular, consider your inventory levels. You may be holding stock of items – particularly higher-ticket items – while you await customer payments, which means you will need other stock to sell to customers who are ready to buy and take in the same day.

• Storage. Given the nature of layaway, you will be holding items for customers while you await payment. Take into account the need for storage space for items you are holding. Also consider this when you are defining your terms for the agreements – the length of the agreement should also take into account the amount of time you can spend holding this item on the warehouse or back room shelves.

• Go Online. In 2018, global eCommerce revenues grew a whopping 18% from the previous year. This trend shows no sign of slowing down as customers are finding favor in purchasing whenever they want, and from wherever they are. Bringing your layaway offering online means you’re capturing even more of your potential customer market, and you’re making purchasing even more convenient for them.

Layaway payments are a great option for merchants and consumers alike, bringing a range of goods into the hands of those who otherwise may not have the means. With limited risk to both retailer and customer, it’s no wonder layaway plans are seeing a rise in recent years.