Kmart’s Hot Xmas Idea: Layaway

Kmart’s big idea this holiday season is an oldie, but maybe a goodie: Layway. In mid-October, the chain began advertising, via DraftFCB, Chicago, its service, which lets consumers pay for their holiday purchases over time. Layaway first became popular during the Great Depression, but lost favor in the mid-1990s as consumers chose to rack up bills on their credit cards instead. Though Kmart has continued to offer layaway over the years, this is the first time it has played it up so big in its holiday advertising. The primary appeal with layaway is the lack of interest: Consumers who buy gifts on layaway now at Kmart can do so with 10 percent down plus a $5 one-time service fee, and a promise to pay the full amount over the next eight weeks. Kmart CMO Mark Synder said the idea is catching on and underscores Kmart’s brand essence as a “smart” alternative to Wal-Mart and Target. Snyder, the former svp, global brand management at Holiday Inn, who joined Kmart in September, spoke with Brandweek editor Todd Wasserman about how he sees layaway as a key differentiator and how Kmart’s ad spending may be affected by “limited resources” in 2009.

Brandweek: The holiday season is now upon us; how does it look from your point of view?
Mark Snyder: I know this is weird for a retailer to be saying this, but I’m very encouraged. And you can sum up the reason why in one word: Layaway. It wasn’t a new offering for Kmart. Kmart has had it as its core value proposition for the past 40 years, but this year it was obvious that where the economy was heading and the concerns that our shoppers had about being able to give a great Christmas to their families this year. They were looking for options that would help them budget better and layaway turned out to be the thing that was most interesting to them, most compelling.

BW: And so you see that as a key differentiator for Kmart this holiday season?
MS: It absolutely is. Target doesn’t have it, Wal-Mart stopped doing it—those are our top two competitors, so I’ll just call that out. For us to lead with that message, we know for sure from the data sources that we have internally plus the anecdotal evidence that’s been showing up in the media, on broadcast particularly—we have over 111 million impressions now—that customers who haven’t used us in a long time are becoming customers and customers that have never used us are becoming customers because we have a way to help them manage their budgets for the holidays.

BW: What are the other ways to get people in the stores? Is there a category that’s particularly hot this year?
MS: We’re certainly seeing great traction in home electronics. Toys, particularly, is way up over what it’s been in previous years and apparel, particularly kids’ apparel, are the top three categories that are driving the success that we have in layaway. I was in Allentown, Pa., last week and I asked them to take me back and show me the layaway process, how it works, how it’s organized, how they’re getting ready for the big day when they start to hand this stuff out. It was amazing to me how much of those categories were in the storerooms back there [customers have the option of keeping their gifts at the stores to discourage peeking at home]. If you’ve seen the advertising, we’re doing a great job of driving those three categories as well as the brand names that help drive them.

BW: Do you think consumers this holiday season are primarily focused on price?
MS: Price is important, but it’s relative to the context of the value you’re trying to get as well. With regard to layaway, a consumer is really thinking about how they can be careful with their money in three different ways. The first would be not spending their money at all to which, no retailer’s going to benefit from that standpoint. The second is saving money through low prices and then putting it on credit card and we have a couple of competitors that do that really well. And then there are consumers who are saying ‘I may have to pay a bit more, but I’m going to be paying in cash so I don’t have to take on more debt.’ So I think that’s really what the layaway program is all about. If you’re a mom and your kids have got things they want, like Hannah Montana dolls or Razor scooters, whatever, the last thing you want to do is wait ’til the week before Christmas to go out and get that because you’re saving your cash in a white envelope in the dresser drawer. But to be able to go out to Kmart and get those things while they’re fresh on the shelves and know that you’ve got them put away and know that you’re making payments on them every week and you can pick them up before Christmas, that’s a pretty good feeling.

BW: What’s it like to come into a totally different industry like you have? Do you see anything in common between Kmart and Holiday Inn?
MS: There are certainly challenges within the context of those two brands. I mean Holiday Inn and Kmart, we all grew up with those brands and at the time of the height of their greatness they were really the only thing out there. As 20, 30, 40 years rolled on, the categories became more competitive, new brands popped up, shoppers’ and hotel-seekers’ tastes changed somewhat. My appeal in working for Kmart was very much what it was working from the Holiday Inn side. I think they are great American brands and as these brands go, so goes America, and I wanted to get in and work on Kmart because I see the heart and soul of the brand essence of what Kmart is. I see real space for it in the category that we play in against Target and Wal-Mart. That’s the strategy that I play in here. It’s a dynamic business, hypercompetitive just like the hotel business. The pace is very, very quick. The challenge is to be nimble, just like in the hotel business and when you get down to it, it’s very grass roots, very local and you have to consider that when you come up with the strategy to execute across 1,400 stores.

BW: What is Kmart’s brand essence?

MS: I think it’s brand essence is smart. If you think about Target and you think about Wal-Mart. Wal-Mart you can certainly say is the cheapest. Target you can say they’re the hippest. Kmart we think is the smartest and we think that’s because across a set of core values of unexpected quality, brands that are unique to the format, exclusive services like layaway and smart prices and offers like being able to offer a DVD and if you get the DVD you get something that goes along with it. We think that you don’t have to trade off the quality to get a great value and you don’t have to trade off the great price either. So an example of that is for Christmas one of the things we offer is a 100 percent cashmere Jacklyn Smith sweater. One hundred percent cashmere is not something you’d expect to see at a mass merchant like Kmart at a Kmart price. There’s an essence around the Kmart brand that resides around smart that makes a lot of sense.

BW: Looking ahead to 2009, how do you see yourself adjusting your media mix and what about ad spending overall?
MS: Ad spending in general I think we’re taking a look at that now but certainly resources are going to be tough to come by based on just what we know about the economy at this point in time. Certainly we’ve got to focus on keeping the multichannel strategy in place and we’re beginning to see some traction around our multichannel efforts. And certainly radio and broadcast TV are going to continue to be important as well. One of the things I’ve learned over my career is that it’s not the size of the budget, it’s the size of the idea and I think layaway is the perfect example of that.