When I first read the news about alleged Good Samaritans and Secret Santas paying off Kmart customers’ layaway accounts, the cynical side of my mind took over. What a great marketing maneuver for K-Mart. With mystery lay-off angels, they are saying, “Buy your gifts on layaway here, an action that could very well be profitable for us. There’s a chance someone will pay off your layaway account — but no promises.”

The press Kmart has received both in social media and in mainstream news has been significant. How can you not think that this movement, which seems to be tied almost exclusively to one particular retailer, is not an inside initiative? It also strikes me as odd that in many of the cases I’ve read about, the mystery helpers do not pay the accounts off in full. They leave a small amount left in the account for the customers to pay.

My cynicism is probably an overreaction, at least in most cases. I may be overreacting to the idea that Kmart needs whatever help in the press in can get. To illustrate what the experience of having your layaway account paid off by a stranger might look like, here is a personal account of what happened in one store:

… A young father wearing dirty clothes and worn-out boots stood in line at a layaway counter alongside three small children. He asked to pay something on his bill because he knew he wouldn’t be able to afford it all before Christmas. Then a mysterious woman stepped up to the counter.

“She told him, ‘No, I’m paying for it,’” recalled Edna Deppe, assistant manager at the store in Indianapolis. “He just stood there and looked at her and then looked at me and asked if it was a joke. I told him it wasn’t, and that she was going to pay for him. And he just busted out in tears.”

Before she left the store Tuesday evening, the Indianapolis woman in her mid-40s had paid the layaway orders for as many as 50 people. On the way out, she handed out $50 bills and paid for two carts of toys for a woman in line at the cash register.

“She was doing it in the memory of her husband who had just died, and she said she wasn’t going to be able to spend it and wanted to make people happy with it…”

Why are these generous people targeting almost exclusively Kmart? Many other stores, like Walmart, Best Buy, Sears and Toys-R-Us, offer layaway programs. It’s this association with one particular retailer that has my public-relations radar pinging.

Kmart as a business entity has been financially troubled for some time. Any press is good press, and charity-infused press is great press. Anything that drives people to shop, including the idea that a mystery individual will cover the rest of your layaway payments, can help the company survive.

Perhaps Kmart is singly targeted because of its history. This particular retailer has offered and profited from layaways consistently for decades, and Kmart is perhaps the one store most associated with this type of purchasing plan.

These acts of charity are coming too late to inspire a shopper to take a chance by initiating a new layaway plan in time to receive the gifts in full by Christmas. There is a small chance that someone might come in and make the payment, but is it worth the risk?

Let’s say you want to buy gifts at Kmart with a total value of $250. With the 8-week layaway plan, you would need to pay $26 today and four bi-weekly payments of $58. Assuming you follow through, you won’t be able to take home the gifts before Hanukkah or Christmas, and you will have spent $8 more than today’s advertised prices. If, however, someone pays the remainder of your layaway account before the end of the week, you would have received $250 in gifts after paying only $26. I would further assume that this charity will not continue after the holidays, so there is even a lower probability of a Secret Santa paying off layaway accounts after Christmas. If you give up paying after the end of the week because you were hoping for charity rather than planning to pay for the items in full, you’ll have sunk only $26 into a purchase you’d never receive.

In other words, it’s an expensive lottery.

Tom Dziubek, podcast host and producer and extraordinaire, and I were discussing this story. He mentioned that reading about the charity of fellow humans inspired him to remember to complete his own charitable contributions. The spirit of giving is infectious. Some Kmart shoppers who have been the beneficiaries of good will have done the same for other layaway customers, and people who read positive stories are inspired to do other good deeds.

This holiday season, I’ll leave my cynicism behind. Perhaps these random acts of kindness are not part of a marketing scheme. Perhaps the are simply the result of charitable individuals not associated with Kmart. Perhaps the media isn’t complicit with promoting one retailer over another. Just this once.

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Photo: robertstinnett
Detroit Free Press

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In the midst of the economic recession a few years ago, layaway programs made a big comeback. Previously a great method for buying items that may have been on the expensive side in eras when credit was not available to many consumers, the same economic conditions returned when credit card offers became scarce recently. Layaway programs are popular around the holidays, because consumers who plan in advance can reserve popular gifts (like the year’s hottest toys) while saving for the complete purchase, regardless of whether a credit card is available.

Taking Walmart’s layaway program as an example, we can draw a comparison between shopping with a layaway program, using a credit card, and paying with cash. Assume you use Walmart’s full layaway period, October 17 through December 16, you make payments for two months before receiving your item, and you pay a $5 up-front fee for the privilege. Assume also you are buying items that cost $250 in total. The $5 fee over two months equates roughly to a 12% annual percentage rate. That’s not that much different from credit card rates, possibly a little lower than average.

With a credit card, however, you can take the purchased item home immediately. With layaway, the store holds the product for you until you’ve completed your payments. If you decide later on not to finish purchasing an item on layaway, you’ll need to pay another fee in order to get your initial deposit of 10% of the item price and any subsequent payments back.

Without a layaway program or a credit card, you would need to save on your own before having enough cash to buy your items. If it takes two months to save up, you would receive the item at the same time you would have if you had taken advantage of layaway, but without the item reserved for you, it might be sold out by the time you can afford to buy it. That’s reason enough to avoid some of the most popular holiday gifts. The best option is to save for your holiday spending — or spending for any large item for which a layaway program would be beneficial — well enough in advance of needing to complete the purchase.

There are several benefits of taking advantage of a layaway program for holiday shopping.

• Reserve your item in advance, ensuring the popular item will be available later.
• Avoid traditional banks and credit cards, and likely pay smaller fees.
• Keep your savings in your bank account.

Layaway programs provide an alternative to saving in advance, with a fee to pay for the privilege. In some cases, it can be a better deal than paying with a credit card, though consumers making credit card payments have the advantage of taking the purchased item home immediately.

Besides these benefits, there are potential drawbacks and dangers. One important drawback of layaway programs is that you lock in the price when you place your downpayment. If the store offers a sale later on, you won’t be able to take advantage of the lower price without cancelling your layaway and incurring fees to do so. If the item you wish to buy is offered at a deep discount, you may be willing to incur the cancellation fee, but otherwise the result is paying more to take home an item than shoppers who bought the item that day without the help of layaway.

Be aware of your store’s policies. While the cancellation of a layaway program usually won’t prevent a full refund (minus fees), some stores take a stronger stance and offer no refunds.

There is a lot of pressure to buy gifts during the holiday season in an effort not to disappoint loved ones. It’s much easier to manage expectations — or it can be, if a family has a philosophy of managing expectations already — than to jump through financial hoops to buy the latest and greatest trendy gifts.

Have you taken advantage of a layaway program?

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