Government Intervention Resurrects Long-Dead Retail Practices
16th October 2014
Everything that is old is new. Denim jeans, gratuitous use of neon, retro glasses, and nü-metal have all returned from the dead to plague the living. In the spirit of making the old new and relevant, Walmart has kicked off its seasonal layaway program, a practice that was discontinued in the mid-2000s but resurrected in 2011.
For those who can’t remember this antiquated ritual, which was a common practice during the Great Depression, here’s how it works: after the customer makes a small down payment, the store will “lay” the item “away” until the customer completes payment. You might ask: Why didn’t people just use their credit cards? The answer is that credit cards didn’t really exist back then. Some stores engaged in financing and extended credit to select customers, but the interest rates were high, and, keep in mind, these were stores, not debt collectors or banks.
With the bad economy of the Great Depression, consumer credit dried up as risk of default increased. Layaway was beneficial because it allowed the consumer to guarantee a good’s availability while the store minimized its risk exposure. The availability of goods was a concern because supply chains were not as developed, and when a store ran out, it might be out indefinitely.
Layaway largely disappeared during the 1980s with the massive expansion of consumer credit and credit card companies. Credit card companies were able to offer lower rates because they specialized in analyzing and pricing risk. They also took on the burden of debt collection. This shift was a win-win for everyone involved. Customers benefited by being able to immediately enjoy their purchases. Stores benefited from getting the full value of the purchase upfront while simultaneously freeing up storage space that was previously occupied by layaway.