Sears Layaway Revival Suggests Retail Financing Challenges

Sears Holding has reintroduced a lay away program at its namesake stores, an interesting development in itself, but one which also brings to mind something Deloitte chief economist Carl Steidtmann said at last week’s National Retail Federation convention.

The company relaunched layaway for the holiday season at Sears stores after seeing interest in it rekindle at Kmart, which has retained the program despite the huge expansion in credit card availability that occurred over the past couple of decades. As Wal-Mart CEO Lee Scott pointed out at the NRF convention, a substantial proportion of discount store customers don’t even have checking accounts. Layaway can be an important service for those shoppers. Today, with banks canceling credit cards to many consumers, it becomes even more important. Layaway also fits with trends toward frugality and the shedding of debt that have taken hold even with consumers who are in reasonably good financial shape.

Essentially, Sears has replaced banks as a purchase facilitator, one consumers can use to fulfill needs when cash is scarce and debt scary. Of course, layaway may seem quaint to some but it has an old-fashioned appeal. During the holidays, Sears even touted the action of some consumers who paid off the layaway balances of others, referring to them as “layaway angels.”

Steidtmann said retailers may be acting as financiers in additional circumstances. He predicted that banks and the finance system in the United States would be consolidating for a number of years, and, through that time, limiting the availability of credit and services. At the NRF show, he said that the consolidation would last through two years of recession and recovery, then through a period of inflation sparked by government stimulus programs. Although he didn’t predict hyperinflation, he used the example of a period when Brazil was experiencing two percent inflation a day to illustrate how retailers might have to embrace financing flexibility. Then, Brazilian retailers were competing by selling goods below cost to consumers who were immediately spending their paychecks before the value of their wages wore way. The retailers made money because in the 30 days they had to pay their vendors, the value of the money remitted had eroded so much, they were profiting from the inflation.

Again, that scenario is unlikely in the United States. Yet, even given relatively modest inflation, retailers may need to depend upon their own resources to manage. Many major suppliers are in fragile states after years of thinning margins to meet the cost demands of consolidating retailers. It’s unlikely that retailers can take much more from that quarter. On the other side, consumers have demonstrated that they will put off purchases unless they see a substantial bargain. At the hub of strapped suppliers, cautious banks and wary consumers, retailers will need to become more financially adept to keep goods flowing through their stores and cash flowing into their own bank accounts.