Wal-Mart (NYSE:WMT) brought back its layaway service in 2011 to relatively wide acclaim. Though only available during the holiday shopping season for most merchandise, layaway gives consumers the ability to pay for large purchases over the course of a few months. Some shoppers even use it to help manage their holiday shopping, keeping presents out of the house until just before the holidays so that impatient children don't find the goods while snooping around.
This year, Wal-Mart has changed its layaway service slightly to eliminate the $5 layaway charge that the company previously included while setting up new layaways. Instead, a $10 charge will be assessed for cancelled or abandoned layaways to encourage customers to complete their layaway plans. While this is being touted as a way to make layaways easier for low-income consumers, the shift is likely inspired by competition from companies like Toys "R" Us and Sears Holdings' (NASDAQOTH:SHLDQ) Kmart stores.
The importance of layaway
The holiday shopping season can make or break retail outlets. Retail stores report up to 40% or more of their annual sales during the holiday season, and many higher-end products such as the upcoming Xbox One and PlayStation 4 are released during the holidays to capitalize on this increased spending. Layaway plays an important part in this, especially in recent years when the struggling US economy has made it difficult to afford paying for larger purchases up front.
Many stores, including Wal-Mart, abandoned layaway in the early 2000's as a way to cut costs and deal with inventory storage problems. This resulted in a significant uproar from customers, indicating that the demand for layaway services may have been higher than the stores originally thought.
Wal-Mart isn't the only one hoping for a solid holiday turnout this year. Target (NYSE:TGT) is also hoping for a strong showing in the later part of the year to help counteract less-than-stellar performance in Canada. Despite being on track to meet its goal of having 124 stores in the country by the end of the year, Target reported a loss per share of $0.21 from its Canadian segment and expects Target Canada to be in the red until 2015.
Knowing the importance of the holidays, most of the major retailers have started their holiday plans early. Wal-Mart began its layaway program this year on Sept. 13, marking its earliest start yet since its return. Kmart didn't have to start its layaway program as it runs year-round, but it has begun airing holiday-themed ads to support a promotion that began on Sept. 8 (resulting in criticism from some consumers who felt that it was too early to advertise for the holidays.)
Target doesn't offer layaway, but that doesn't mean it isn't planning for the holidays and has already begun hiring seasonal help in some locations. Last year the company hired around 90,000 holiday employees, down from 92,000 the year before, but the expansion into Canada will likely increase that number this year. The company will also likely announce holiday promotions soon, such as the price-matching guarantee it offered last year that matched online as well as physical retailers.
In recent years, online shopping has gained significant momentum during the holiday shopping season. Online holiday shopping increased 17% year over year in 2012, with four separate days during the holiday season breaking the $1 billion mark in e-commerce transactions; retail shopping, on the other hand, saw a 2% drop on Black Friday from its 2011 numbers and seemed to lag for much of the holiday season. The rise in online shopping numbers is likely to continue this year, especially if online retailers offer multiple days of Black Friday-like deals as they did last year.
Amazon (NASDAQ:AMZN) is one of the major beneficiaries of this trend toward online shopping during the holidays, with sales in the fourth quarter of 2012 increasing 22% over the previous year and over 26.5 million items ordered on the company's peak sales day. While this increase corresponded with a net income loss of 45% compared to the same quarter of 2011, CEO Jeff Bezos attributed this at least in part to a shift in shopping trends including slowing growth of physical book sales.
Amazon isn't the only company benefitting, however, as other major retailers struggle to strengthen their online offerings as well. Walmart.com featured several online-only holiday deals and online Black Friday shopping to bring in additional customers, while Kmart.com allows customers to layaway items and pick them up in local Kmart stores. Target.com has offered weekly deals and special online-only coupons in the past as well.
While it remains to be seen which retailers will come out on top in regard to holiday shopping, there's a good chance that this year's holiday season will be stronger than the holidays have been recently. Though the Chicago-based research firm ShopperTrak believes that holiday shopping growth may increase by as little as 2.4% this year based on a sluggish back-to-school season and shorter shopping period between Thanksgiving and Christmas, retailers are attempting to improve their odds by starting the holiday shopping season before summer even ends.
John Casteele owns shares of Wal-Mart Stores. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.