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Retailer bids goodbye to layaway as shoppers switch to buy now, pay later

Supply chains have now snarled, and the manufacturing is constraining. For weeks’ headlines are telegraphing a much clear message to the shoppers to shop early. In the past years, early-bird shoppers might have turned to layaway plans to reserve holiday gifts and pay for the purchases over time. However, many retailers, including Walmart, have done away with the programs. Shoppers now have new tools at their disposal to spread out all the payments.

One of the popular options for consumers is to buy now and pay later plans. Retailers are also big fans. The point-of-sale loans are much easier for retailers to manage. Research shows that these options at night lead to bigger baskets with greater customer loyalty. RBC Capital Markets has estimated a BNPL option, increasing over the 20% to 30% of retail conversion rate. It further lifts the average ticket size within30% and 50%.

“It’s all about incrementality,” said Russell Isaacson, director of retail and automotive lending at Ally Lending, on bidding farewell to layaway. He further said, “getting that incremental sale or incremental consumer.”

Installment payments offer customers options and convenience to manage budgets and purchasing. The option also increases the trust within the retailers and consumers that leads to an incremental sale, higher frequency of purchase, and higher average purchase size.

But now, companies like Affirm, Afterpay, and Larna are offering to buy now pay later payment plans apart from layaway. These are particularly attractive to younger shoppers and millennial consumers. While each of the plans has differences from the number of payments to specific terms, the key similarity lies in its promise.

Installment payments are very common among consumers who do not have access to credit or they do not want to purchase a credit card. The option also makes much sense for the shoppers who do not have funds to cover the complete purchase but will over the next several paychecks.

The average transaction value is about 200 dollars for a buy now, pay later and purchase, which is making it more profitable than layaway. Many times the check-out value for the retailers would be around the mark of $100, which could pay later, which was not available. The same consumer can spend $175 to $200 with a monthly payment of $50.


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