Cramer: Layaway Tips For the Cash-Strapped Consumer

Back on January 9, I told "Mad Money" viewers that retail stocks were in bad shape. I said that stocks like Coach (Stock Quote: COH) and J. Crew (Stock Quote: JCG) weren’t done sliding south, and that the holiday shopping season would have retailers filling in their balance sheets with red ink rather than black.

But after reading about the re-emergence of store layaway programs, you have to wonder about retail stocks. There are two sides of the story. One, if people are having to turn to layaway programs, where money is put down up front and on paid on a regular basis until there’s enough to cover the purchase price, then the economy might be in worse shape than we thought, if that’s possible.  On the other hand, since stores like K-Mart (Stock Quote: SHLD), Sears, Marshalls and TJ Maxx (Stock Quote: TJX)  have begun touting layaway programs, it could turn out to be a tidy profit center from retailers. In fact, Sears Holdings just reported its first good Christmas in years, in part because of customer demand for layaway services.

Usually, retailers will charge a small “storage fee” – around $5 - to hold the item for a customer, along with a cancellation fee, and a returned check fee, but they also normally don’t charge any interest on the purchase.

Plus, we’re starting to see the emergence of online layaway specialists, like Layaway.com and eLayaway.com, where you create accounts online. After you’ve made enough payments to cover the bill, the layaway site, working with retailers, ships the product to you. The online layaway vendor takes a cut off the top.  That sector is heating up fast—according to eLayaway, transactions are up 1,400% since October, 2007.

As a business model, I’m not a big fan of layaways. They’re pricey to manage for retailers and they’re not much of a profit center, accounting for only a small percentage of a retailer’s revenues (numbers are hard to come by, but Burlington Coat Factory says about 5% of its sales last August came from layaway purchases).  Despite the problems in the credit card sector, credit remains the preferred payment method for retailers, and few stores want to discourage consumers from yanking their Visa cards out of their pocketbooks.  Trust me, immediate gratification ain’t dead yet, if ever.