Toys R Us Inc. has thrown down one more challenge to its rivals this holiday season by announcing it will offer layaway on its more expensive items. That combines two hot shopping trends: the comeback of layaway and the bare-knuckle fight for toy sales.
The privately-owned toy chain, which is being investigated for anti-competitive practices by the FCC, will offer layaway on big-ticket toys such as bikes, dollhouses and gym sets, and electronics such as karaoke machines and televisions. Its Babies R Us stores will also offer layaway on some infant and toddler items such as furniture, car seats and strollers.
Putting an item in layaway will require a 20 percent deposit and carry a $10 service charge, plus a fee for canceled orders that varies by state. The merchandise will be available seven to 10 days after the final payment; the company says Christmas gifts will have to be paid off by Dec. 6 to be picked up before the holiday.
Offering layaway on higher-priced items is a smart move, because it's an area where competition is not as intense. Stores are in an all-out war to get their share of stagnant holiday sales, and toy retailers are falling all over themselves to cut prices this season, realizing that there is no hot toy to drive sales. Wal-Mart Stores Inc. (WMT) fired the first shot by extending its list of $10 toys, a move that was quickly followed by Target Corp. (TGT).
But while $10 toys may drive traffic into stores, they don't pay the bills; margins on the big-ticket items are better. As National Retail Federation Vice President Ellen Davis said during the group's recent holiday forecast: "If you're selling 1,000 toys under $10, you'll have to sell a lot of toys to make up for the $1,000 flat screen [TV] you sold last year."
Layaway has been making a strong comeback in these tight-money, tight-credit times. Toys R Us CEO Jerry Storch acknowledged as much in the announcement, stressing how layaway will give shoppers a chance to pick gifts while the selection is good and stretch out payments.
"The program offers added convenience and flexibility, providing customers another option for budgeting their holiday spending," he said in a statement.
Layaway was already rising in popularity since last winter, and peaked during the back-to-school shopping season as cash-strapped parents put all sorts of school supplies and clothing on layaway.
The service has become a strong marketing tool going into this holiday season, especially for Sears Holdings Corp., (SHLD) which is offering the service in both Kmart and Sears stores. Kmart announced in September it would even offer layaway on its website.
Sears, in particular, is a worry for Toys R Us, because it announced this summer it will relaunch toy departments in some of its stores, decades after it exited the business. Meanwhile, Wal-Mart, the largest toy retailer in the country, eliminated layaway a few years ago, and thus far has shown no interest in bringing it back.
Learn the most important step in structuring an investment portfolio.View Course »