New loans crumble, sales increase at pawn shops
Pawn shops provide a way for people to get money quickly for loaned items, or for them to purchase items at a reduced price.
When the pandemic struck, pawn shops were deemed essential and remained open, but the reasons people entered were different than expected.
“This is how we test diamonds, it’s a diamond tester,” said Michael Mack, owner of Max Pawn, while explaining how pawn shops determine the value of a ring. “And then we weigh. “
It’s part of the process in a pawnshop, customers bring in an item and an employee assesses it. They make an offer based on value. If you say yes, you are going out with cash. Either you keep the money and the store eventually puts your stuff up for sale, or you bring the money back and collect your items.
Like all industries, COVID-19 has caused change.
“Business is tough,” Mack said. “Not all of these companies are able to do business the way they used to, and pawn shops are no different. “
However, pawn shops were seen as essential.
“We are a financial institution. We have been open the whole time, ”said Andy Zimmerman, CFO of Gold & Silver Pawn Shop.
It is about giving loans to people who need money quickly, sometimes to those who do not have access to a bank.
“Unbanked and underbanked, they usually refer to a consumer who finds that your typical bank branch doesn’t really meet their needs,” said Jonathan Polter, CEO of the PawnGuru app.
The app connects customers to pawn shops, without having to go to a store first.
“Traditional banks make money through various transactions and because of the financial situation of unbanked and underbanked consumers, they are generally not creditworthy for many of these other products,” Polter said.
It was important during the last recession.
“When 2008, pawn shops became more prevalent because banks were giving everyone less money. Before, pawn shops were aimed at a lower middle class, ”Mack explained. “We had people come over and got a loan on a Ferrari to pay their private school bills.”
That’s what store owners said they expected when the economy was hit in March.
“The anticipation was that loan balances or pawns would go up but, in fact, it worked the other way around, with the federal stimulus it seems that many typical clients of a pawnshop have essentially received a increase, ”Zimmerman says.
Zimmerman works at the Gold & Silver Pawn Shop in Las Vegas, a popular store and tourist destination.
“The outflow of goods versus the influx of goods was a surprise to everyone in the industry,” he said.
Pawn shops can’t even keep some items in stock, such as electronics, guns, and jewelry.
“We were just selling thousands of ounces of silver,” Zimmerman said. “The stimulus really had an impact on people’s behavior. “
“Also the bikes, everyone wanted to ride a bike, so the bikes were gone,” Mack said.
This left many stores with low inventory and a lot of money.
“Right now, I don’t think the industry has ever seen this before,” Polter explained. “Their industry has dried up and at the same time, they haven’t really had time to rebuild themselves.
“Pawn shops aren’t built to sit on money,” Polter said. “They’re designed to put money in the pockets of consumers and that’s how they make money.”
Mack’s Shop works with clients like many pawn shops, offering curbside pickup or lowering loan interest rates for a period of time.
“The asset is the customer,” he said.
But without more loans and a low inventory of items, the owners of pawn shops have said there could be problems later.
“We’ve been hit and if you go to other pawn shops, there’s nothing in their stores at all. So for that to come back, we need a normal economy to really get loans and sell things, ”Mack said.