Consumer Nation

As Layaway Becomes Big Selling Point, Toys 'R Us Expands Program

Since the financial crisis, consumers have been leery of taking on more debt, and many have turned to layaway programs to pay for Christmas gifts and stay within their budget.

Presents in shopping bags in living room
Betsie Van der Meer | Stone | Getty Images

Toys 'R Us brought back layaway for big ticket items in 2009, and is now announcing that it plans to expand the program and lower the required service fee.

The toy retailer also plans to offer qualified online shoppers a limited-time "bill me later" option as an alternative to the in-store layaway program.

The initiative follows on the heels of Wal-Mart Stores' decision to offer a layaway payment planon certain types of products during the holiday season.

Wal-Mart had discontinued layaway in 2006 because so many customers were using credit cards that the program had become obsolete. But as credit dried up in the wake of the financial crisis, many consumers returned to paying for items in cash and layaway, a relic of the Great Depression that allows customers to set a product aside and pay for it over time, became a service consumers were demanding.

Layaway had been a fixture at Kmart, a unit of Sears Holdings' for decades, but the company brought it back at its Sears stores in 2008 after a long hiatus.

Taken together these programs show that retailers have no illusions about the holiday season. They are expecting that consumers will once again watch their spending very carefully.

Toys 'R Us said its program will begin on Oct. 15, and will be offered for almost all of the playthings it sells in 450 of its nearly 600 stores.

Those who use the program will be charged a $5 service fee, and be asked to put down 20 percent of the purchase price. Last year, the service fee was $10. The new fee is more in line with the fees charged by Walmart and Sears, although Walmart only requires a 10 percent down payment.

Toys 'R Us customers will then have 90 days to pay. (Although half of the purchase price must be paid within 45 days, and all items must be paid for in full by Dec. 4.) If an order is cancelled, shoppers pay a $10 charge, but their are some state-specific exceptions to this fee.

The toy retailer declined to say what portion of its sales were rung up using the layaway option in the past, but it did say "thousands" of customers have taken advantage of the program.

"We know that consumers will continue to look for ways to stretch their dollars this holiday season, but they still want to make sure they have that special Christmas gift for the children in their lives," said Neil Friedman, president of Toys 'R Us.

In addition to being used as a budget tool, layaway also is a good service for parents who want to reserve toys they expect to be in demand and still keep these gifts hidden until Christmas morning.

As for the "Bill Me Later" option, the retailer will offer customers the chance to make no payments and pay no interest for 12 months on purchase of $500 or more. For purchases of $100 or more, customers will be able to take six months without payments or interest.

As Walmart indicated when it brought back its layaway plan, the program truly is a selling point for some customers, and Toys 'R Us realizes this as well. To highlight their program they will have an online catalog dedicated to the "big gifts," ranging from doll houses to swing sets to train tables, that can be purchased using these two programs.

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