Wal-Mart Stores, Inc. (NYSE:WMT) brought back its layaway service in 2011 to relatively wide acclaim. Though only available during the holiday shopping season for most merchandise, layaway gives consumers the ability to pay for large purchases over the course of a few months. Some shoppers even use it to help manage their holiday shopping, keeping presents out of the house until just before the holidays so that impatient children don’t find the goods while snooping around.
This year, Wal-Mart has changed its layaway service slightly to eliminate the $5 layaway charge that the company previously included while setting up new layaways. Instead, a $10 charge will be assessed for cancelled or abandoned layaways to encourage customers to complete their layaway plans. While this is being touted as a way to make layaways easier for low-income consumers, the shift is likely inspired by competition from companies like Toys “R” Us and Sears Holdings Corporation (NASDAQ:SHLD)‘ Kmart stores.
The importance of layaway
The holiday shopping season can make or break retail outlets. Retail stores report up to 40% or more of their annual sales during the holiday season, and many higher-end products such as the upcoming Xbox One and PlayStation 4 are released during the holidays to capitalize on this increased spending. Layaway plays an important part in this, especially in recent years when the struggling US economy has made it difficult to afford paying for larger purchases up front.
Many stores, including Wal-Mart, abandoned layaway in the early 2000’s as a way to cut costs and deal with inventory storage problems. This resulted in a significant uproar from customers, indicating that the demand for layaway services may have been higher than the stores originally thought.
Wal-Mart isn’t the only one hoping for a solid holiday turnout this year. Target Corporation (NYSE:TGT) is also hoping for a strong showing in the later part of the year to help counteract less-than-stellar performance in Canada. Despite being on track to meet its goal of having 124 stores in the country by the end of the year, Target reported a loss per share of $0.21 from its Canadian segment and expects Target Canada to be in the red until 2015.
Knowing the importance of the holidays, most of the major retailers have started their holiday plans early. Wal-Mart began its layaway program this year on Sept. 13, marking its earliest start yet since its return. Kmart didn’t have to start its layaway program as it runs year-round, but it has begun airing holiday-themed ads to support a promotion that began on Sept. 8 (resulting in criticism from some consumers who felt that it was too early to advertise for the holidays.)
Target doesn’t offer layaway, but that doesn’t mean it isn’t planning for the holidays and has already begun hiring seasonal help in some locations. Last year the company hired around 90,000 holiday employees, down from 92,000 the year before, but the expansion into Canada will likely increase that number this year. The company will also likely announce holiday promotions soon, such as the price-matching guarantee it offered last year that matched online as well as physical retailers.