Optimizing Layaway Programs to Benefit the Retailer’s Bottom Line 

Once touted for being the helpful assistant to getting those all-important presents under the tree without racking up extensive credit card debt, layaway was making its graceful and quiet exit a few short years ago. Credit cards were becoming ubiquitous with more affordable payment structures, thereby eliminating the need for layaway’s easy payment program. At that time, layaway only represented a small subset of customers and sales, so it was not exactly missed as Walmart, for example, abandoned the program in 2006.

Then, in 2011 amidst a stagnant economy, layaway justifiably made its entrance back into the big-box retailers. And in 2012, this easy payment concept was met with intense competition among them. For example, Walmart, which reintroduced layaway in 2011, extended its layaway period by 30 days and later reduced its fees almost entirely while Toys “R” Us, Kmart and Sears eliminated fees for the holiday season altogether. However, the bigger question from the retailer’s standpoint:

Does layaway benefit my bottom line?

This question can be answered by first analyzing the behaviors of the typical layaway customer and by exploring the benefits and costs associated with offering the payment program.

The Layaway Customer

The Layaway Customer generally falls into one of four categories:
1. Cannot afford full purchase price
2. Wants to reserve hot merchandise
3. Uses program for Santa’s Attic
4. Carries on tradition

We first saw layaway programs during the Great Depression, a time when many could not afford to pay in full for purchases. Now, in the current recession, people have found themselves in a similar situation. In fact, a 2011 national survey by the FDIC revealed that 28% of households are currently unbanked or under-banked. Financing is not as easy to come by these days, and many would-be customers just do not have the funds available to make full purchases.

Layaway has also turned into a program where consumers can use it to reserve those mega-popular gifts that are sure to run out, or they use the program as storage, aka Santa’s Attic, to keep their family from finding the gifts they purchased.

Then, in the Southeastern states, many customers have used layaway for years, because it is a tradition for their families. They have grown up using the program and will continue to use it despite having the financial means. This is because it is a part of the holiday shopping experience to them.

The demand for the program absolutely exists, and it may even increase if the economy continues in its current position. Between 15 and 30 percent of sales during the holiday season are layaway purchases. This range varies by geographic region; southern states and more rural areas tend to have higher percentages of layaway sales. This is commensurate with a 2012 CouponCabin Survey which found that one-third of households are at least “Somewhat Likely” to use layaway for holiday shopping. According to the number of layaway customers, retailers should consider offering the program if they can optimize their internal operations to justify the expense.


Much of layaway’s benefit is indirect and intangible, especially in light of the time of year that it is often promoted. Retailers push the Fall holiday season to bring their income statements back to the black, hence Black Friday, and layaway brings customers into the stores early in the season. It is a great draw for those customers who are otherwise on the fence or waiting to make their purchase. For this reason, it is no surprise that retailers began to promote layaway one month earlier in 2012 and started the holiday selling season in September.

When retailers experience 15 to 30 percent of sales attributed to layaway, the increase in sales is certainly a benefit. However, it is difficult to draw a direct line to the incremental sales. If we have the four customer behaviors described above, then it is possible that the “Santa’s Attic” and “Hot Merchandise” customers would have purchased even if layaway did not exist. Unfortunately, there is insufficient data on the percentage of layaway customers who fall into these behavior categories, so it is hard to determine the impact of each behavior category individually.

On the other hand, another benefit is the opportunity for larger overall purchases when the customer is using layaway. According to a 2012 eLayaway consumer survey, the average layaway purchase amount is $400.

To further add benefit to retailers, “layaway angels” have grown in the past two years and have paid down layaway balances for unknowing customers. The positive press is helpful to the retailer’s reputation and can encourage additional layaway customers with the idea that their balance may be one that gets paid. Further, once the retailer wins a customer through layaway, the retailer has essentially removed that customer from the market for the rest of the holiday season. Layaway customers often complete their holiday shopping through the layaway purchase.

Apart from the aforementioned benefits, retailers may also attempt to consider layaway fees a benefit. However, the fees, if any, are often too small to realize any real financial gain. Plus, most of the big box retailers eliminated fees in 2012. The indirect advantage from the fees is the customer’s increased engagement and commitment to the purchase.

So, in the instances where layaway does not have a net benefit, it may be hard to understand why retailers would offer the program. The simplest answer: Goodwill. For the small subset who need it and to show the rest of the world that the company is thinking about its patrons, the retailer offers the program to say, “We’re here to help you.”


There are many cost activities involved in a typical layaway program. Understanding each is critical in the creation of a favorable program. The four cost areas fundamentally impacted by layaway are labor, storage, logistics and cancellations.

Retailers already hire additional labor for the holidays; however, they may have to hire even more personnel to manage the layaway process. The layaway purchase standard operating procedure is different and more complex than a typical sale. The layaway team will need to ensure adequate support in reserving layaway merchandise, moving it to a storage or onsite holding area and retrieving it upon final payment. This will require the financial resources not only to hire additional labor, but also to train that labor separately from the rest of the team.

Retaining the merchandise means that the retailer will realize carrying costs associated with that inventory for up to four months. As most retail stores are built for merchandise display, there is often little space available for storage. In fact, many retailers have already built up excess inventory leading into the holiday season, so there is even less available storage than other times of the year. Moreover, there is a large chance that the customer will return early to pick up the item – as is often the case for those customers who complete the payments early. Therefore, retailers would be best suited to secure local storage for layaway purchases in these situations. The retailer must take into account the type of merchandise in order to procure the appropriate storage facility. For example, if the merchandise is electronics, which happens to represent 42% of layaway purchases according to a 2012 consumer survey prepared by eLayaway, then the retailer will want to avoid using an on-site container for storage in order to mitigate the risk of damage to the merchandise.

With off-site storage comes the need for transportation logistics to transport the item from the store to the storage location as well as back to the store. Moreover, the retailer needs to consider the implications if the customer arrives early to pick up the item. If the item is off-site, then you risk upsetting the customer by having him or her have to return another day. In these instances, it is important to have an intelligent tracking system in place in order to know where the merchandise is at any time.

Up to 25% of layaway orders, on average, are cancelled. For most big-box retailers, the customer forfeits the fees if any were charged, but this hardly makes up for the costs to employ the program or the opportunity cost of the merchandise remaining on the floor available for sale. In situations of cancellation, it is crucial that the merchandise is immediately returned to the sales floor. The longer it remains in the back room or in storage, the longer the opportunity is missed for sales. Inventory that would have easily sold during the holiday season may end up on the sales floor marked down in January, because it was held up in layaway storage during the prime selling season.


If you are a retailer contemplating next year’s layaway program and reviewing ways it can be optimized, then here are three tips for making it as profitable as possible.

1. Use Clever Fees
Utilize fees where it helps the customer to commit to the purchase. Walmart, for example, asks for a $5 fee, but then returns the fee when the purchase is completed. The key here is that the customer is committed to the purchase by paying the fee, and the perception is that the fee is free. It is returned in the form of a gift card upon final payment, which enables another purchase.

2. Ensure Sophisticated Logistics
If the customer has agreed on a pick-up window, then the retailer will need high-level infrastructure to transport the item to the store during the agreed-upon window. Further, RFID tracking can be integral in monitoring the item’s movements in the event that the customer attempts to pick up the item early.

3. Avoid Physical Merchandise
A retailer who chooses to route orders through an online system of layaway, does not have to manage a physical item throughout the layaway process. Instead, personnel at the layaway counter could scan the item to find it in the global database and place an order online. Merchandise can remain in the distribution facility until the proper window. This will avoid redundant transportation charges and reduce the need for additional storage. Moreover, the retailer avoids the consequences of cancelled purchases.

– Rob