At a time when the coronavirus has caused a spike in unemployment and crippled countless small businesses, the pawnbroking industry has found itself in a perfect storm of sorts, which has fueled a surge in demand for loans as well as an appetite for secondhand merchandise.
“Obviously pawning is the meat and potatoes of the business,” said Len Summa, CEO of Data Age, which owns the widely used PawnMaster software platform. Besides borrowers, Summa told PYMNTS’s Karen Webster in a recent interview, pawn shops are also seeing heavier than usual traffic from buyers.
“A lot of customers like to go to these pawn shops to buy secondhand materials so it’s more like thrift shops nowadays versus just pawning,” he added. In fact, he said, inventory is actually very sparse right now because “secondhand stuff is in vogue nowadays.”
And just like other retailers, pawnshops also typically do 30 percent to 40 percent of their business in the finals two months of the year.
“We call it the ‘silly season’,” Summa said.
The Lender of Last Resort
With an estimated 11,000 independently owned pawnshops operating nationwide, it’s a niche business with a unique view on society and the economy. First off, there really is nowhere else that a stranger can walk into a business and ask for — and get — a $150 loan, which happens to be the average.
“I think pawn shops provide an invaluable service, they’re an invaluable part of a community,” Summa said, noting the reality that there are currently over 40 million unbanked Americans who have no access to check, ATMs, credit cards or loans. But he says pawnshops cater to all manner of customers that defy stereotypes.
“We’ve got business owners that go to pawn shops that need some type of bridge loan to be able to satisfy payroll,” Summa said, as well as wholesalers looking to access a lot of people in a very short period of time to move inventory.
“So it’s not just that the end user is having a bad day anymore when they visit a pawn shop,” he said.
Old Industry, New Technology
Despite ancient origins that literally go back three thousand years, Summa said modern pawnshops are increasingly investing in the digital economy, be that through websites, social media, text messaging, payments, branding and customer engagement.
As much as the PawnMaster platform has become the industry’s leading point of purchase and inventory management software solution, Summa said there is still plenty of room for growth.
“I would say a quality pawnshop — from a digital point of view — is going to consume a lot of their time and will generally have standalone, full-time employees staffing the [digital] part of the business,” he said.
While jewelry, gold, guns and electronics are consistently among the most common items used as collateral for loans, Summa said consumers still walk in with all sorts of things that shop owners need to price appropriately. While he said some shops simply do a comparable price search on eBay, PawnMaster’s price guide feature uses real data gathered from other shops to assist in this critical side of the business.
Lending vs. Selling
Summa said the “redemption rate,” or the percentage of people who pay off their loans and reclaim their collateral, averages about 80 to 85 percent.
“So for the most part, when people bring stuff in to pawn it, they want their stuff back,” he said, noting that brokers feel the same way. “That pawnbroker pretty much does not want to buy that merchandise. Pawn is in the name. That’s where they make their money off of loans.”
As far as loans are concerned, Summa said with no applications to fill out or credit checks, the process is judgment-free and like no other.
“All you need to do is you bring in whatever piece you want to pawn,” he said, “and that pawnbroker is going to typically ask two questions; ‘Do you want a loan against it, OR do you want to sell it?'” he said.
In fact, he said, these all-cash transactions are so simple that some customers have been known to pawn the same item three or four times a year.
The business also has its challenges, including a fairly vast regulatory environment that must follow different local, county or state laws. And he said it’s a business that also requires daily contact with the police to protect against stolen merchandise. However, for hard-working, resourceful, would-be entrepreneurs, Summa said the pawn business is a great way to make a living and also help a lot of people.