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Cold feet at the cash register

Shoppers are thinking twice before they charge -- using layaway for cheaper purchases or even abandoning items altogether. And what does this herald for the holiday shopping season?

By The Associated Press

For nearly a year, frugality has been the overriding trend in consumer spending.

Shoppers have pushed up sales of store-brand foods and paper towels, turned coupon use into a hobby and held out for 70%-off sales and gently used secondhand clothing and housewares. Stores have reported spikes in spending around common paydays.

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 relatively cheap supplies such as notebooks, pens and pencils.

And look at the items abandoned on shelves near the cashier. More shoppers are getting cold feet as the tally mounts, and more find their purchases rejected when they hit their credit limits. One retail expert says 25% of shoppers abandon at least one item, more than twice the rate that occurs when times are flush.

Here's a closer look at how families are recalibrating their needs -- and how they'll pay for them.

An early start on layaway season

A record number of shoppers, shut off from credit and short on cash, are relying on Kmart's layaway program to pay for their kids' school needs, said Tom Aiello, a spokesman for Kmart's parent, Sears Holdings. 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 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.

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

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

Recently, 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. She and her husband both work as teachers' assistants, and she fears they could be casualties of budget cuts.

"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.

Harbinger of a lean Christmas?

Layaway has its roots in the Great Depression. It became passé 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.

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% of annual sales for many retailers.

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% of spending from last year.

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.

Video: The state of spending

Competitors have been slow to follow, which may give Sears and other stores that have them an edge.

Wal-Mart discontinued the practice in 2006, except for jewelry, citing rising costs and falling demand. TJX Cos., which offers layaway in some of its Marshalls and T.J. Maxx stores and nearly all of its A.J. Wright locations, declined to comment on its layaway business.

Thinking twice in the checkout line

Shoppers are ditching sweaters in the dress department, dumping cookies near the grocery cashier and waiting until the last minute to judge needs versus wants.

People "want to be in the act of shopping, but they don't want to be in the act of buying," said Joel Bines, a director at AlixPartners, a turnaround consultant.

Continued: More lost sales

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