NEW YORK – Wal-Mart Stores Inc. (WMT) will end layaway service this year due to falling demand and rising costs, scrapping a tradition started when Sam Walton founded the chain in 1962 catering to cash-strapped rural shoppers in northwest Arkansas.
Wal-Mart said Thursday it will stop accepting layway items Nov. 19 with a pickup deadline of mid-December. In its layaway program, customers make a down payment to hold an item and then generally had up to 60 days to pay it off, with a shorter deadline in the peak Christmas season.
Layway is used mainly by people at the lowest end of the income scale, who don't have credit cards and may not qualify for credit, analysts say.
The move comes as Wal-Mart is changing on many fronts, from adding upscale fashions to targeting new urban customers, in a bid to revive growth rates that have fallen behind smaller rivals such as Target Corp.
"Demand for layaway service has declined steadily as consumers turn to current options including online shopping, shopping cards and no-cost credit alternatives that were not available when the company was started," said Pat Curran, executive vice president of Wal-Mart store operations.
Analysts said most retailers have already dropped layaway service as it is expensive and cumbersome. Merchandise can be tied up for months and employees have to keep track of a steady trickle of payments.
"This is another recognition that Wal-Mart is no longer a little Ozarks company but instead is the nation's largest private employer and the world's largest retailer," said Patricia Edwards, portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages $8.2 billion in assets and holds 51,000 Wal-Mart shares.
Still, Wal-Mart's union-backed critics said the move marked another step away from its founder's vision.
"Sam Walton's Wal-Mart — the one that 'bought American', treated workers with some dignity, and gave low income customers a chance to buy an expensive item over time — that Wal-Mart is now on permanent layway," said Chris Kofinis, spokesman for WakeUpWalMart.com.
It is Wal-Mart's latest break with tradition this year.
Wal-Mart introduced pay caps for hourly workers last month after four decades of no limits on annual merit raises. It stopped selling guns in about a third of stores to make room for more non-hunting sporting gear. It is also tailoring stores to local demographics rather than stocking all Wal-Marts alike.
Wal-Mart said it is working on ways to make other payment methods available to shoppers with limited credit, such as Wal-Mart-specific cards that offer zero interest for the first 6 to 12 months.
Edwards said dropping layaway will not chase off Wal-Mart's lowest income shoppers because those customers still need low prices. Getting some of those shoppers to take in-house credit cards can also mean more money for the chain in the form of card fees.
Wal-Mart's shoppers have an average household income of around $30,000 to $35,000 a year, compared to $50,000 to $60,000 for customers at smaller rival Target Corp. (TGT), Edwards said.
Wal-Mart spokeswoman Linda Blakley said that, as demand for layaway has dropped, the costs have gone up since the department has fewer customers.
Blakley said she did not have a precise estimate for the number of Wal-Mart's more than 1.3 million U.S. employees who will be affected.
But she said a typical layaway department has three employees. Multiplied by Wal-Mart's 3,256 U.S. discount stores and Supercenters, that would mean around 10,000 could be impacted somehow. Wal-Mart said layaway employees will be encouraged to seek new opportunities in their stores.
"We will do whatever we can to help them find those new positions," Blakley said.