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The Layaway Makes a Comeback

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Sears hopes to teach new customers old tricks.

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Attention tapped-out shoppers: Sears (SHLD) has revived an old marketing technique to help you spend money you haven't got: Layaway.

Many consumers have blown out their credit cards and the retailer hopes it's found a deft way to keep folks spending in what's shaping up as the weakest holiday season in recent memory.

Sears recently launched the program storewide after limiting it to jewelry in 1989. Kmart, a division of Sears and the nation's number 3 discount retailer behind Wal-Mart (WMT) and Target (TGT), has maintained a layaway program for decades. It began heavily promoting the option last month, however, and although it isn't releasing sales figures, the company says the response is "tremendous."

The plan encourages folks to spend money they don't have in their pocket and builds desire by having the snookered shopper carry the item to the layaway counter. Shoppers can put most items, including clothing, toys and home fitness equipment, on layaway.

However, there are about 20 items the killjoys in the corner office won't let shoppers put on layaway, including beer, wine, cigarettes, food, fuel, oil, chemicals, magazines, prescription drugs, pool chemicals, cell phones and personal computers.

Layaway plans were common during the Depression, but began to fade during the Reagan boom of the 1980s. Wal-Mart, which has increased sales in the current economic downturn by aggressively cutting prices, ended the practice in 2006, citing falling demand.

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Today, Wal-Mart says the use of credit cards are declining sharply. The second quarter of 2008 is the mirror image of the same period last year, when credit card use among its customers increased by double digits. This suggests consumers are now being selective about purchases, rather than just filling the cart and putting the stuff on a credit card - a perfect segue to the layaway option.

Other discounters are goosing sales with coupons, cash-back promotions and 2-for-1 deals to stretch a buck - or at least to create the impression of a bargain.

Sears and Kmart are betting the layaway plan will encourage shoppers to be less selective and spend more. The retailers are smart to collect the money up front in view of increasing credit card default.

Yikes-o-rama! check the calendar! Christmas is less than 6 weeks away so you've got to pile up stuff now on layaway and make those payments if you hope to put it under the tree.

Just remember that all fees are non-refundable and cancellation fees apply.

Turning shoppers upside down and shaking coins from their pockets would be simpler, but some silly consumer group would be sure to howl.

No positions in stocks mentioned.
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