Why Walmart Had to Bring Back Layaways
Sep 22nd 2011 10:30AM
Updated Sep 26th 2011 1:45PM
What took Walmart (WMT) so long to bring back layaways? Sears Holdings' (SHLD) Sears stores brought back their layaway payment plan in 2008. Now, three years later, Walmart is finally doing the same, but the retail giant could have used the shot in the arm a lot earlier.
Walmart has been struggling to end its declining same store sales (a key metric in judging a retailer's performance), which has faltered over the past nine consecutive quarters. Although net sales for the company increased by 3.4% and 1% in 2011 and 2010, respectively, comparable-store sales declined by 1.5% and 0.7% in the same periods.
It's no wonder Walmart is struggling: With massive unemployment and consumers still struggling to manage their daily costs, discount retailers have to pull out all the stops to win over new customers, or even retain the ones they have.
The key to keeping those customers is to present them with a value proposition -- in this case, offering them a layaway plan, whereby customers pay a small service charge for the option to pay for products in installments without paying any interest.
Deja Vu Not Soon Enough
Walmart had a layaway plan but shelved it in 2006, when it thought credit cards and gift cards had made the program obsolete. It probably should have never shuttered the program. Customer loyalties shift on a dime, and ultra-discount retailers such as Family Dollar (FDO) and Big Lots (BIG) have been luring penny-pinchers in the past several years.
Walmart says it might extend its layaway option through the year. The retailer expects the plan to win back its customers, increasing its customer base and reversing the negative comps trend. Walmart had better hope it's not too late.
Motley Fool contributor Abantika Chatterjee owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores.