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This is How They Trick You

Nancy Patterson November 9, 2011 Easy Street 4 Comments on This is How They Trick You

The Marketing Trick Retailers Don’t Want You to Know

We all know it yet we still fall for it. Companies frequently use marketing ploys and tricks to gain our business. This holiday season is no exception. Retailers are bringing back a marketing ploy originally introduced in the 1950’s.

Layaway programs. Before there were credit cards there were layaway programs. These plans allowed consumers to reserve items in the store and pay for them in installments.


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As credit cards were introduced these programs became unnecessary and were phased out by most retailers. Since the current recession has tightened consumer credit and more people are having a hard time getting credit cards, retailers have brought back their layaway programs with a vengeance! The biggest retailers in the world have begun advertising their programs for the 2011 holiday season. Wal-Mart, Sears/K-mart, Toys ‘R’ Us, TJ Maxx, Best Buy, and Burlington Coat Factory currently offer layaway programs for their customers.

While on the surface these programs may seem appealing, they are actually marketing ploys retailers are using to get us to open up our wallets during a recession!

What these retailers aren’t telling us are the downsides to their layaway programs. All of which will cost us more money!

I guess retailers don’t want us to know about all the hidden fees attached to their programs. They hide them in the fine print so consumers like you and me are unaware! Every retailer charges a fee to enroll in their layaway program. These fees can range from $5 to five percent of the total purchase price. At first glance those numbers don’t seem very high but take a look at this example to illustrate just how bad these programs are. Wal-Mart requires a $5 enrollment fee and a ten percent down payment for their layaway program. Say you put $100 worth of gifts on layaway. Under their terms you would be required to give them a $15 initial payment ($5 service fee plus $10 down payment) leaving you with a $90 balance to pay off over the course of eight weeks. Essentially you are getting a $90 loan for two months; the percentage you pay in service fees is equivalent to a 44 percent interest rate. The highest credit card interest rates typically run about 18-25 percent.

Retailers also leave out the fact that they charge cancellation fees. If you had purchased Grandma’s gift with cash or a credit card you could return the gift to the store and get back all your money. It doesn’t work like that when you put an item on layaway. All retailers charge a hefty cancellation fee of about $15. So you have to be absolutely sure all items you put on layaway are essential!

What’s worse is that almost all layaway programs don’t allow consumers to take advantage of sales! If you put an item on layaway and then it goes on sale you may still have to be the higher, original amount, not the new sales price.

If you miss a payment you could lose all the money you invested! With layaway programs consumers are asked to make periodic payments. If you miss a scheduled payment you may not be able to get back the money you’ve paid so far. At the very least they will charge you a non-refundable cancellation fee on top of the non-refundable service fee you’ve already paid. At best you’ll get store credit or a gift card which means the retailer still gets to keep your money.

*    Also, payments must be made in person at the retail store, so that means more frequent trips to the store and more temptation to buy additional items.

Instead of in-store layaway programs try out the free, online version of a layaway program. Smartypig.com  Smartypig is essentially an online piggy bank. You deposit money into your online account and watch your savings grow! There are no fees and your money is FDIC insured.

The twist to Smartypig is that you set savings goals for specific purchases. You plug in what you are saving for and how much money you need to reach that goal. You then set up an account that takes regularly scheduled debits from your bank account and deposits the money into your SmartyPig account. This way you ensure you have the money to pay for things before you buy them!

What makes SmartyPig so great is that they encourage savings. They encourage you to share your goals with friends and the public. After setting up your goal, the bank will encourage you to share the news with your friends on Facebook, Twitter, or your own website. SmartyPig is the first bank that “gets” social networking.

SmartyPig makes it easy for others to deposit money directly into your account. You can search for friends to add by entering their email addresses. This is a great option if you are saving for a honeymoon. SmartyPig allows your wedding guests to easily contribute to your account.

Once you reach your goal you can withdraw your cash or purchase a discounted gift card for the retailer that carries the item you wish to purchase. Essentially they help your money go further!

If you’re saving for a goal that can’t be bought with a gift card, like a car or a wedding, there are other withdrawal methods. SmartyPig also offers a reusable SmartyPig-branded MasterCard debit card for your purchases.

SmartyPig also offers some of the most competitive interest rates in the nation. As of today, the rate is 1.1 percent. Most likely that’s a better rate than what your bank is offering you for your savings accounts.

Next time you read a retailers latest advertisement ask yourself “What’s in it for them?” As is the case for layaway programs, it’s getting their hands on more of your money!


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Keeping Money in Your Pocket,

Nancy Patterson

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  1. Mark November 9, 2011 at 7:02 pm

    Yes . I never put any thing on layaway. If i don’t have the money to buy it, I don’t need it. Also sometimes they forget about their lay away. Lost that money too.

  2. Jan Schochet November 9, 2011 at 9:37 pm

    Thanks for this warning. Just to let you know though, layaway may have been co-opted by bigger stores in the 50s but it was started long before, at least here in the south where my family owned small shops since the 1880s (though not sure layaway was THAT old!) and the small stores never ever ever charged a layaway fee or a membership fee. Layaway was begun as a way to truly help out those who didn’t have enough money and they were not taken advantage of. The stores did want to make sales and, of course, holiday time was the time when LA was most taken advantage of. BTW, I’m a scholar of small businesses in the south and have done extensive studies of them. So I am not just mouthing off here : )

  3. Ray November 10, 2011 at 9:39 am

    I used to be in retail management and retailers did not like layaway either. The main reason was that it screwed up the inventory of the store. When a customer puts a product on layaway, it is theirs and for the inventory system, it has been sold so that the store will be replenished. Many times those products were either counted during inventory or sold to someone else. This causes shrinkage and in national store chains it can cause a large amount of loss profit, not to mention lost products and mad customers. District managers encouraged the use of in store credit or 3rd party financing.

  4. Nancy Patterson November 10, 2011 at 6:15 pm

    Hello Everyone,

    Thanks for the comments on layaway. I didn’t realize how old a concept this was. It probably started, as you say, with shop owners looking to help there customers who were low on cash. Also I can see how it can potentially be a nightmare for retailers. Though customers should still away from them @Jan it’s interesting to hear about your expertise on small business in the south. We may need to interview for an LOP article. I’m sure you have lots of great things you can share.

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