Summary
The July 12 annoucement of the Sears early launch of the Christmas selling season raises a number of questions including: 1) the lay away plan details, 2) the impact on store inventories, and 3) whether this is merely an attempt to prop up monthly sales in anticipation of a poor back-to-school season.
Analysis
Intended or not, much of the press coverage of this earlier Christmas launch centered on the lay away plan availability and the success that Sears Holdings (Symbol: SHLD) had at Kmart last year with the rebirth of the lay away. However, a look at the details of the plan as posted on the Sears.com website reveals a program with several interesting twists and turns.
In a Fast Facts description on the website one finds that it is an 8 week contract, requiring a cash down payment, service and cancelation fees, regular biweekly payments and merchandise exclusions. If one were to Christmas shop now, the lay away contract would have to be fulfilled by mid-September and the merchandise retrieved. A cash down payment of $15 or 20% of the purchase price is required to start the plan. Payments of 25% of the balance are due biweekly until the balance is paid. Failure to make the payments results in forfeiture of the service and cancelation fee totalling $15. Finally it notes that the lay way plan is not available on home electronics or appliances. These would seem like gift items that might be in demand.
These details differ somewhat with the program found at Kmart.com. While the service and cancelation fees are the same, the plan can be paid with cash, check, debit or credit cards. There is also no prohibition of electronic or appliances.
Some of the most significant questions raised are about the impact on inventory and same store sales reports. While the Kmart plan Fast Facts talks about the return of merchandise to inventory if the customer does not fulfill the conditions of the lay away plan. One might infer that at Kmart if you put a toy on pay away it is put in the backroom until you make all the payments over 8 weeks. The Sears program Fast Facts does not carry the same language and simply states that the plan is good for "in-store merchandise" not rain check items. Such a situation would seem to fly in the face of Sears near maniacal desire to run down inventories. I cannot envision a Sears with their warehouse space stuffed to the ceiling with lay away merchandise. But then again it is for only 8 weeks. But this might explain why no electronic or applicances. If they are warehoused at a central location, they are not technically "in-store."
Which leads to the question of when will the sale be accounted for? For the purposes of reporting same store sales each month are these lay away sales recorded at the signing of the contract or at its fulfillment? I would guess it would be the former. As a result are we to expect frequent revisions of monthly sales figures as lay away contracts are not fulfilled?
Like much of what has been done in the last few years, this probably tends more toward financial engineering than breakthrough merchandising. Long before the recession began Sears was struggling to find customers and sales. As the strategy/tactic of the month effort plays out, darker days may be ahead. Then again, collecting $15 service and cancellation fees on an item that is repeatedly put on lay away but whose contract is never fulfilled is a business model of sorts.
