Pawn shops enter holiday-shopping fray

Pawn shops enter holiday-shopping fray
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p>By Andria Cheng, MarketWatch

From Las Vegas and Los Angeles to Orlando, Fla., pawn shops appear to have shed their stigma and become a holiday-shopping destination. “We are seeing good traffic for the holiday season,” said Dennis Weese, chief operating officer of publicly traded Cash America International Inc. CSH -0.61% , which has 800 stores in 23 states. “We have a broad spectrum of customers that come in for the holidays.”

No longer are such outlets focused solely on lending to low-income consumers in downscale neighborhoods. Many pawn shops are expanding in more-affluent areas and increasingly are seeing white-collar and higher-income shoppers — who not only may borrow money, but also buy new or used jewelry, luxury watches, game consoles and electronics, often at deep discounts compared with regular-priced retail merchandise.

“The new customers are coming from all segments of the population. What’s central to all of them is getting a good deal,” Weese added. “The consumer is very value-oriented today regardless of socioeconomic status. They put us in the consideration set the past three or four years. The stigma associated with used merchandise has gone away.”

To better compete with mainstream retailers, Cash America has its own holiday-layaway program and stages its own annual customer-appreciation event on the first Friday of December, which Weese said “gets bigger every year.” Demand for that day serves as a good indicator of its sales for the month.

In addition, the company is running commercials in markets such as Las Vegas and New Orleans, touting things like electric guitars and a diamond ring that it said are up to 70% off retail. To make sure its products are priced competitively, it scours website prices along with local circulars.

“The composition of customers in the last three to four years has changed,” Weese commented. “It’s a very sophisticated shopper. That forces us to be very competitive. We research what everybody is doing in the marketplace.”

Pawn shops traditionally have been seen as a last-resort source of financing for those barely making ends meet (or worse) in the U.S. economy. Yet the recession stemming from the housing bust and the financial crisis of 2008 led many middle- and upper middle-class shoppers to visit pawn shops for the first time, mainly to seek financing. They then discover there are good deals to be had there, according to pawn-shop operators. Meanwhile, shows such as History Channel’s “Pawn Stars” have helped lower the negative impression that consumers may have about shopping at such stores.

The National Pawnbrokers Association estimated there were about 10,000 pawn shops in January, up from about 6,400 in 2007, when the most recent U.S. Census data were available. As evidence of their broadening acceptance, many of the new pawn shops are being opened in more-upscale neighborhoods across the country, the trade group’s spokesman Emmett Murphy said.

Cash America’s Weese, for instance, said the company also has gone “more upstream” and targets new store openings in “good locations” where it can. These factors have combined to lure bargain shoppers seeking holiday deals.

“Last year we saw a huge trend in customer traffic over Christmas,” Murphy added. “People are interested in finding that unique item.”

Some pawn shops may not afford consumers the same kind of generous return and refund policies of established retailers. Cash America, for its part, says it backs everything with a receipt for 30 days, adding that if for any reason a product needs to be returned, the company will give a full refund, replace it with an item of comparable value or offer store credit.

More broadly, an improving economy and job market may pose challenges for pawn operators, because fewer people may see the need to sell or hock their luxury items or other desirable merchandise, creating inventory risk.

Taking a shine to pawn

People in the pawn-shop business provided examples of actual shoppers that underscore their growing retail focus. Quentin Caruana, owner of a company that sells preowned designer goods, recently drove four hours from Laguna Beach, Calif., to a Las Vegas pawn shop to buy his wife a $10,000 piece of diamond jewelry for Christmas — a purchase he said would have cost him $30,000 at regular jewelry store. That wasn’t his first time; he’s bought designer handbags, jewelry and other accessories at pawn shops before with the knowledge of his wife.

“I don’t see any difference about buying there versus at a department store that’s maybe [having a] sale,” Caruana said. “Most of the diamonds and jewelry, they get shined up like brand-new. A lot of times they also get things new that come in the original packaging.”

Caruana knows this firsthand: He’s a 37-year old former mortgage broker and banker who described himself as a “wealthy guy” until he was hurt by the bursting of the housing bubble, during which he turned in his prized Rolex and other possessions for cash at pawn shops. “By going and visiting these locations, I realized that I’m not the only one selling items, new items,” he added. Read more about the outgrowth of Caruana’s business from his trips to pawn shops.

While Caruana still visits department stores and boutiques such as Tiffany TIF -1.03% , Hermès or Louis Vuitton, he said he doesn’t shop as often at those places anymore after beginning to buy at pawn shops.

“Pawn used to be a four-letter word, but now it’s more sexy,” said Michael Mack, a fourth-generation pawn-shop owner who opened the upscale Max Pawn shop about five minutes off the Las Vegas Strip three years ago. “We are seeing high-end customers who used to go to Cartier and Tiffany. In today’s economy, people want deals.”

To meet growing demand, the company began selling online about 18 months ago. It has advertised for the first time promoting the luxury side of the business this holiday season, with tag lines such as “You don’t have to stand in long lines to get the best deals.” On Black Friday, Max Pawn “was mobbed,” according to Mack.

In California, Jordan Tabach-Bank, the owner of the Beverly Loan Co. in Beverly Hills, said he expects this holiday season to be one of his best, since his sales so far are higher than ever.

“We see hedge-fund managers, politicians, doctors, celebrity and professional clientele,” Tabach-Bank commented. “These white-collar customers want a deal. They are buying for wives, siblings, children and grandparents. It’s not embarrassing to say ‘I got this secondhand.’ It’s a source of pride to say you got a great deal. We’ll gift-wrap and make it look as beautiful as it looks on Rodeo Drive.”

One of the shop’s customers, Tom, an attorney who declined to give his last name, said he started going to Beverly Loan as a shopper three years ago. This holiday season, he reports he’s spent $15,000 there on a Rolex watch for his father and on diamond-set earrings for his wife.

The watch alone would have cost him as much as $30,000 elsewhere, Tom remarked. “I’ve always looked for a deal, and they have a good deal. You don’t feel like you are in a pawn shop. It’s like any other jewelry place.”

Because of increased demand, Tabach-Bank said the family-run shop, which has been going for more than 70 years, is opening a second location in New York.
Franchise opportunity

Money Mizer Pawn & Jewelry, a chain of seven company-owned and franchised locations in Alabama, Florida and Georgia, also expects to have a good holiday season as it’s seen a 15% increase in holiday sales since Black Friday. Chief Executive Robbie Whitten said Money Mizer saw its best retail sales ever last year, with its retail business growing faster than its loan business.

Four years ago, the chain would see 40% of customers coming in to buy and the rest to borrow money; those numbers now have reversed. Whereas 10% of its customers used to be white-collar, that demographic has grown to be 35% of its business. Money Mizer began to franchise its pawn-shop concept three years ago, targeting a total of 50 locations over the next five years.

“We’ve seen a big uptick in diamond sales of $1,500 to $2,500,” Whitten noted. “All of our stores are on the good side of the town, well lit and very nice.”

Shoppers also are coming in to buy musical instruments and antique pieces, as well as electronics including iPads, laptops and digital cameras. “Shopping at pawn shops has become popular,” he added. “The men and women from the country club and golf course aren’t afraid to be seen in here buying stuff. There’s no embarrassment.

Source: MarketWatch

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