Layaway: Sound recession strategy or outdated retail gimmick?

The Washington Post reported this weekend that layaway programs are back at retailers like KMart and Sears (click here for article) . Click here to get the KMart layaway program details.

In a layaway, shoppers put a small down payment on merchandise and pay a service charge of roughly $5 to $10. Shoppers must return every few weeks for 2-3 months to make payments until the merchandise is paid off. Only then can they take their prized possession home.

Such programs were popular during the Great recession but have been discontinued by most retailers in the past few decades.

I can't help but ask: Is the layaway program a sound recession marketing strategy or is it an outdated retail gimmick?

Here's what's working for layaway this season:

1. As is pointed out in the article, the fees for the layaway program are much lower than credit card late payment fees.
   
2. It forces people to budget for items they truly want to buy. Even Oprah Winfrey mentioned it on her TV show.
   

However here's what works against it:

1. It requires people to have the financial and mental discipline to buy what they can afford and wait for a few months to get it. This would be especially difficult for people who have not maxed out their credit limits.
2. Customers who lose merchandise because they could not make a payment in time will be disillusioned and may not use it next year.
3. Customers who make layaway payments using credit cards could be pushed further into debt.

In balance, I think that layaway programs will definitely increase in popularity compared to last year (partly because of wider availability and promotion of the program). However the discipline dilemma may not allow these programs to be as popular as they should :-( . Of course I'd love to see the US consumer prove me wrong.

Store chains should be careful not to use layaway as a technique to make easy money from cash-strapped customers (e.g., They should offer extensions to customers who are late on their last payment). They will likely lose customers who lose their holiday presents to a missed payment.