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Layaway offers options, additional fees

By Andrea Sutherland

CSMNG

Stacks of X-Boxes, Sony Playstation 3s, Disney Princess guitars and a Craftsman Wet/Dry Vacuum line the walls of a storage room in the Kmart off of Palmer Park and Powers boulevards. In the store, Melissa Dohoney helps customers, hauling products in and out of the storage room.

“It gets busier around the holiday season, much busier,” said Dohoney, lead layaway associate.

Kmart is one of several nationwide chains offering layaway options for customers. For a small fee, either $5 or $10, customers can reserve products and pay off the cost in installments over 8- and 12-week periods. Fees of $10 for an 8-week contract and $20 for a 12-week contract apply if the customer chooses to cancel their contract. Kmart reimburses payments made towards items.

“We work with our customers,” said Brandon Pacheco, Kmart electronics sales associate.

Pacheco estimated that 60 percent of Kmart customers use its layaway option, which the store offers year-round. Dohoney said on a typical holiday shift, she helps 50 customers set up layaway accounts.

“I don’t have the money to do everything right now,” said Dina Torsell, Kmart customer. Torsell said she has used the service in the past. “The payments are easier to make,” she said.

One customer had another reason for using the layaway program.

“I have a teenage son and he snoops,” said Tara Wallace. “We’re a military family and its easier for us to pay in installments. … Even though we’re military and have a steady income, it doesn’t mean we’re rich.”

The predecessor to credit cards, layaway programs offer benefits to customers who may not have access to credit.

However, economists stress the programs ultimately benefit the business.

“Clearly it’s in the best interest of the business,” said Dale DeBoer, economics professor at the University of Colorado at Colorado Springs. “If you don’t buy the product, they get the fees. If you do buy the product, they get the sell and the fees.”

DeBoer said one reason customers may choose to take part in a layaway option would be to ensure they could purchase a hot item that might not be available later in the season, say a Tickle-Me-Elmo or Furby. However, he said the benefits do not make up for the fees companies charge.

“Say you’re making a $500 purchase,” DeBoer said. “You have to give (the store) $50. You give them $5 to hold onto your $50 for two months. On an annual basis, that’s like paying $30 interest, which would be 60 percent fee on an annual basis for them to hold onto your $50. That’s really expensive and you’re not getting anything out of it.”

DeBoer said customers paying in installments may need the added incentive of a cancellation fee to ensure they make payments; however, he doubted a $10 cancellation fee and loss of the $5 deposit would be enough motivation to change people’s behavior.

“If the product is not going to disappear over the next two months, it’s not clear what you’re actually getting out of this except the incentive to save. … But is $15 enough to change behavior?” he said.

With the fledgling economy and high unemployment rates more and more companies are taking advantage of layaway offers for customers. And judging by the storage room at the local Kmart, customers continue to take advantage, regardless of economic deterrents.

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