Early Layaway Gives Away Something About Wal-Mart

Wal-Mart (NYSE: WMT  ) may be in a worse pre-holiday season position than many investors think. Take its decision to launch its holiday layaway program in September, way before you can even say "boo" for the spooky Halloween season. This move illustrates just what kind of plight Wal-Mart's core customers are in -- and why recessionary times aren't necessarily a positive for the Bentonville behemoth.

The discount giant said it plans to start offering layaway programs much earlier than last year, starting on Sept. 16 versus last year's Oct. 17 launch date. According to Wal-Mart's U.S. Chief Merchandising and Marketing Officer, "The customer was saying if they had two more pay cycles that really would be helpful for them."

This development illustrates some pretty severe budgetary constraints on Wal-Mart's core demographic. One of the most difficult things Wal-Mart has been unable to achieve over the last several years is wooing more financially stable consumers into its stores.

Wal-Mart's core customers are unfortunately so strapped that they're juggling their finances from paycheck to paycheck, and are less likely to throw extra discretionary items into their carts. Meanwhile, some of those customers defected to rock-bottom discounters like Dollar Tree (Nasdaq: DLTR  ) and Family Dollar (NYSE: FDO  ) around 2008 and never went back.

Furthermore, Wal-Mart's thrown some interesting twists into its layaway program. It's raising the layaway fee by 200% to $15, but customers who make their final payments will be reimbursed for that charge with a Wal-Mart gift card in that amount.

One company this could particularly injure is already struggling Sears Holdings (Nasdaq: SHLD  ) , which was an early re-adopter of layaway in 2008. Sears and Kmart charge a $5 fee for layaway, which customers never see again. Sears has also tried several other interesting spins on layaway, such as offering discounted back-to-school merchandise for those who use layaway, and even offering travel packages through the layaway model early this summer.

Other retail companies with a history of offering layaway services include Best Buy (NYSE: BBY  ) (which certainly could use any boosts it can get considering its recent circumstances), and T.J. Companies' T.J. Maxx and Marshalls stores.

Although Wal-Mart's move could hurt some of the aforementioned retailers, the major takeaway is the suggestion of Wal-Mart's desperate straits. Its core customers are still struggling to make ends meet in an economy that's pushing them behind or giving them woefully few opportunities to get ahead. Reuters reported a mind-bending historical statistic about Wal-Mart: 85% of its stores' transactions are paid with cash. In other words, some of these folks aren't creditworthy and may not even have bank accounts.

Wal-Mart's shares have surged nearly 40% in the last year, following years of stock-price malaise. Given the macroeconomic climate and how it affects Wal-Mart's most important customers, the early layaway news gives one more reason to believe investors might want to get out while the getting's good.

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Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Best Buy. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 21, 2012, at 1:40 PM, Seanickson wrote:

    I dont thnk it says much about wmts core customers, just its customers who would be interested in layaway

  • Report this Comment On August 21, 2012, at 1:46 PM, Seanickson wrote:

    Also reuters misinterpreted what walmart had said and that was back in 2009 that 15% of its transactions were with credit cards. That was 3 years ago and ofmcourse that doesnt include debit cards. A lot of people such as myself are creditworthy but choose to pay primarily with debit

  • Report this Comment On August 21, 2012, at 2:32 PM, 123spot wrote:

    Alyce, this looks like a company responding to the needs of some of the increasingly wounded people in our country, people who still are determined to have a good Christmas. You're really madmilker aren't you? Only half kidding. Spot

  • Report this Comment On August 22, 2012, at 9:26 AM, Darwood11 wrote:

    I'm not sure who the average Walmart shopper is. A recent article at Ad Age provided data that said 62.5% earn $50k or more a year. 34.9% earned $75k or more.

    What this doesn't tell us is the financial situation of these people; i.e. cash flow. I tend to look at government inflation statistics and gasoline and other energy prices to determine where people are in the short term. Even weather is a factor. These things all impact the monthly checkbook, and because there is also, according to recent statistics, low savings, it would seem that price increases and somewhat stagnant wages put pressure on shoppers to find somewhere to reduce their bills. Is that good for Walmart? Some say it is.

    This year, unusually high temperatures in parts of the country which don't normally experience 95F+ for days, strained air conditioning electric bills.

    I've found quoting statistics, even from reliable sources, to be problematic. For example, AAA is projecting "Thirty three million people will travel 50 miles or more during Labor Day weekend....the highest level of travel for Labor Day since the start of the recession in late 2007."

    But the underlying data at AAA doesn't support that statement. Further, using AAA statistics for 2001-2011 provides average labor day driving of 35.38 million miles. So 2012 will be about 6.7% lower than that average. Is that good or bad? From the context of carbon emissions, it's good!

    For the original article at adage, go to:

    http://adage.com/article/adagestat/demographics-retail/23339...

    Disclaimer: I don't own any Walmart or Cosco stock, but some of my mutual funds certainly do.

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