David Travis, store manager at the Kmart in Conover, N.C., holds bags containing back-to-school supplies that customers have put on layaway. He is standing in the layaway storage area, surrounded by bags that customers are paying for in installments. - AP

Pens, notebooks put on layaway

NEW YORK — To gauge consumers' strain, look no further than the rows and rows of plastic bags awaiting layaway payments at Kmart. They are filled with back-to-school basics — not just T-shirts and jeans but notebooks, magic markers and pencils.

It is unheard of for layaway rooms to be so packed at back-to-school time and for the packages to include relatively cheap school supplies.

A record number of shoppers, shut off from credit and short on cash, are relying on Kmart's layaway program to pay for all of their kids' school needs, said Tom Aiello, a spokesman for Kmart's parent Sears Holdings Corp. Layaway allows shoppers to pay over time, interest-free, and pick up their merchandise when it's paid in full.

"It's a sight. In the past, we would see layaway start to pick up around Halloween" as people get a jump start for Christmas, said David Travis, manager of a Kmart store in Conover, N.C.

Burlington Coat Factory Warehouse Corp. said its layaway business is stronger than a year ago. And, which offers online layaway services for about 1,000 merchants, has seen its business double from the same time last year. Customers are setting aside even $25 calculators and $30 backpacks.

The word "layaway" had more than double the interest among U.S. searchers in August 2009 than it had in August 2008, according to Google Insights for Search.

Retailers that don't offer layaway are seeing financially strapped shoppers keep buying smaller amounts and using more cash than credit to pay.

"It just tells you that consumers have no money — even that $30 backpack is something they can't afford," said C. Britt Beemer, chairman of America's Research group.

Layaway has its roots in the Great Depression. It became passe in the past two decades with the rise of credit cards.

But the recession and financial crisis have caused banks to raise rates, pare credit limits and close accounts. For some consumers, layaway is the best option to budget for purchases.

Buying a little at a time and other signs of stress are casting a dark cloud over the holiday season, which accounts for as much as 40 percent of annual sales for many retailers.

Many economists expect to see another holiday season of sales declines, on top of last year's Christmas period, the weakest in several decades. That's raising more doubts about an economic recovery because consumer spending accounts for 70 percent of economic activity.

Kmart's Travis predicts this Christmas will be a "record-setting" layaway season.

The worries about a weak Christmas come amid a back-to-school season that the National Retail Federation expects will see families cut 8 percent of spending from last year.

Tracey Y. Chandler of Rocky Mount, N.C., started using layaway at the local Kmart last Christmas as the economy soured and again this past summer to furnish her 8-year-old daughter's bedroom.

Last weekend, she put aside $150 worth of back-to-school clothes at Sears stores.

"The job market is too unstable to take on additional debt," said Chandler.

Sears Holdings brought back layaway to its namesake department stores last holiday season after a two-decade hiatus. This year, the company also is copying old-fashioned Christmas club bank accounts to help its Kmart and Sears customers save for gifts.

Stores have reported spikes in spending around common paydays, showing how stretched people are, and shoppers are even ditching more items at the checkout as they recalibrate what they really need.

Those are big worries for retailers, some of which get up to 40 percent of their revenue from holiday sales.

Mark Vitner, a senior economist with Wells Fargo, estimates that total holiday sales will be down 3.5 percent, on top of a 2.5 percent drop a year ago.

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