I’m old enough to remember when putting a large purchase on layaway was a common thing to do. Things changed, of course, and since then when I wandered in the back parts of an older KMart or Sears or JCPenny in search of a bathroom and stumbled upon the layaway counter, I thought “How quaint!” and wondered if anyone still actually brought in an item to be stored while they came in to make regular payments on it.
Well, layaway seems to be back. I’ve seen this noted by a number of people, but here’s a mention by one of my favorite economic thinkers, Harvard professor Elizabeth Warren.
K-Mart has a new ad: Pick out your Christmas presents today, pay a little now and a little as you go along, then pick up your paid-for presents in time for holiday giving. […]
Could this ad be an early sign of how purchasing will change in America? A Pay-Now, Buy-Later plan will undoubtedly constrict spending in the short term, but in the long-term it would mean that the money that now goes to interest, fees and interchange fees (about $107 billion in 2007) can be used to buy socks, haircuts, prescription drugs and a million other goods and services.
This is a good example about why I like Elizabeth Warren so much. Not only does she point out the obvious part, namely interest and fees on credit cards, but she catches the less obvious one, interchange fees. What are those?
Retailers pay about $23 billion in interchange fees so that their customers can use credit cards.
It doesn’t always occur to consumers that using a credit card costs the merchant around 3% of the transaction cost. And credit card companies explicitly prohibit merchants from passing that cost along to the customer in the form of a surcharge for using a card. So instead merchants hide the cost elsewhere, usually in a higher product price. Which means that not only do card users come to see card usage as being free, i.e. same as cash, but cash customers end up paying an unnecessary additional 3% even though they aren’t using a card.
This situation developed in such a way that few people ever counted the cost. At this point we depend so heavily on cards that we might think that 3% is a fair price for the convenience, but if we had been presented with this cost up front (or if it had been made visible through a surcharge) would we have been so willing to accept it? Would it be worth the trouble to you to bring cash or write a check if it meant saving $6 on a $200 grocery bill?
Today’s retailers say they have no choice: so long as their competitors take credit cards, they must do the same or see their customers migrate elsewhere. But if credit availability contracts across the board for consumer, the long-term fallout for K-Mart and thousands of other retailers may not be all bad.
A similar situation evolved with merchant hours. I’m old enough to remember when stores were open at most forty hours a week, sometimes even less, and those hours coincided with the rest of the world’s working hours. But once someone got the bright idea of getting a leg up on their competitors by staying open longer, those who began losing customers to that bright fellow felt the pressure to match his hours. The result was not that customers bought more or that more total customers enter the marketplace, but that a given amount of business was stretched over additional hours, requiring more hours worked and more utilities utilized, adding expenses to the seller that were passed back in the form of higher prices. We all pay for the convenience of that one fellow who wants to be able to walk into a Wal-Mart at 3am and buy anything they sell.
(And don’t get me started on how much more your produce costs you at a supermarket for the sake of customers who expect to walk into the store at 8:30pm and find abundant quantities of any vegetable might take a mind to buy.)
In the early 80s I took a trip to the Netherlands. I watched Princess Diana get married on Dutch television. I drank some excellent beer and ate good, fresh food. And I quickly learned to be very conscious of store hours, which by law were not only limited to forty hours per week, but the same forty hours for everyone, 9am to 5pm Monday through Friday. There were some exceptions—bakeries could shift their hours earlier in the day, and restaurants and bars were exempt. But otherwise shopping was very inconvenient—by American standards, anyway.
Not long before I arrived there had been a major innovation, namely Thursday evening shopping, with stores remaining open until 8pm. But this required that the hours be reduced somewhere else, so stores now opened at noon on Monday. Americans can hardly imagine such encroachments on their convenience. But I thought it was quite humane and still do, both for the customer and for the merchant. Is it really so difficult to plan our lives to get our shopping done within such limits? Is the minor convenience that 24/7 brings worth the cost in terms of higher prices and the need for third-shift jobs?