Retail Analyst: Consumers Benefit From Layaway Retail analyst Howard Davidowitz says the economy has forced many retailers to again offer layaway. Most retailers had stopped because it was not economical for them. Davidowitz tells Ari Shapiro that layaway has some advantages for consumers — but they better make sure they will be able to make the final payment, or they will lose the money they already have paid into the item.
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Retail Analyst: Layaway Sign Of Consumer Credit Woes

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Retail Analyst: Consumers Benefit From Layaway

Retail Analyst: Layaway Sign Of Consumer Credit Woes

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ARI SHAPIRO, host:

For more on this trend, we turn to retail analyst Howard Davidowitz. He says layaway has some advantages for the consumer.

Mr. HOWARD DAVIDOWITZ (Retail Analyst): It is a very good program, as long as you can make the final payment. If you can't, you will forfeit the money that you paid, and there may also be an additional $10 fee. So that yes, it is a very good deal. It's growing in a few areas. It's really not that big. There is a site, eLayaway.com that claims they're doing very well and a thousand retailers are participating. At the end of the day, there's really only about seven or eight retailers doing layaway in a big way. Most retailers have actually stopped doing layaway.

SHAPIRO: Why?

Mr. DAVIDOWITZ: Well, it wasn't economical for the retailer. Because, see, the retailer has got to take the merchandise, take it off the floor, put it into a stock room. It's all this handling, processing. The customers comes in, pays $3 every week. It was a messy business. Most retailers - by the way, including Wal-Mart - did not find it profitable and gave it up. Right now, Wal-Mart does not do layaway, only on jewelry only.

SHAPIRO: And yet from what I understand, a company like Kmart, actually, has a huge increase in people doing layaway on small-ticket items.

Mr. DAVIDOWITZ: That absolutely right. But if you look at Kmart, they're a train wreck. They're closing stores. So if you look at who's doing this, I mean, that may tell you something. I don't want to say it's an act of desperation. Let's put it this way: Very few of the top retailers are doing it. Of course, you've got T.J. Maxx, Marshalls. They're very good operators. They're doing it. But yes, it does show the desperation and weakness on the part of the American consumer.

SHAPIRO: I can understand people, you know, putting down $50 this week, $50 next week for a big-ticket item like a refrigerator. But when you're talking about pens and pencils, something that costs a few dollars.

Mr. DAVIDOWITZ: Let's talk about it and let's talk about the reality of half of America. We're in a bifurcated society. Now, if the kid needs a pair of denim and a pair of sneakers to go back to school, that becomes a crisis. It's important to get the sneakers because he's got to have them. He doesn't want to look terrible, so that couple of dollars means everything.

SHAPIRO: Well, yeah, I was going to say, typically, when people don't have money for a small item that they want to buy, they just put it on their credit cards. You're saying things are so bad that a credit card is no longer even an option for many people.

Mr. DAVIDOWITZ: What it says is the consumer is under enormous stress. The consumer can't pay their credit card debt. Consumer bankruptcies are going through the roof. They can't pay their student loans, their auto loans. In fact, consumers have cut back on using their credit cards because their lines are being cutback. So the consumer is cutting back using credit cards, and if you're out of money and you're out of credit, layaway is a way to get something.

SHAPIRO: Howard Davidowitz is a retail analyst in New York City. Thank you.

Mr. DAVIDOWITZ: You're welcome.

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