EagleTribune.com, North Andover, MA

August 18, 2013

Pawnshops, revamped, challenge discount retailers

By John Ewoldt
Scripps Howard News Service

---- — David Andrews has added another option to his shopping rotation: pawnshops.

The Osseo, Minn., man recently discovered that some are supplementing their usual assortment of guitars, TVs and jewelry with new merchandise purchased from liquidators.

Pawnshops are spiffing up their stores, adding new merchandise and trying other strategies to attract customers like Andrews who wouldn’t have considered the outlets in the past.

Since 2007, the number of pawnshops nationwide has grown from about 7,000 to 10,000, according to U.S. Census Bureau data. Pawn-industry revenues were $15.7 billion nationwide in 2012, as reported by Marketdata Enterprises in Tampa, Fla.

Some pawnshops are considering getting out of the retail business and focusing on providing a bank alternative to the unbanked and under-banked. Other pawnshops have poured big bucks into retail buildouts and remodels and added new merchandise to augment a declining amount of pawned merchandise.

Pawnshop owners have been forced to find new sources for merchandise to stock stores after more consumers discovered Craigslist and eBay in the recession, said Howard Grodnick, president of Jacobs Trading Co. in Hopkins, Minn. Those sources include wholesalers and liquidators such as Jacobs Trading, which purchase retailers’ and manufacturers’ returns, overstocks and damaged goods.

“In the past two years, the amount of merchandise we sell to pawnshops has more than quadrupled,” Grodnick said.

Patrick Doolittle, owner of four Excel Pawn and Jewelry locations in Minnesota, has had great success selling liquidated odd lots of patio sets, bicycles, above-ground pools and lawn mowers — many of them brand-new. They’re purchased from wholesalers that buy leftovers from Costco, Sam’s Club, Sears, Target and Walmart.

“New merchandise makes up over 50 percent of my sales now,” he said.

Business is so good that he’s adding a warehouse to store the merchandise and to distribute it to his stores. “In the future, people may take out fewer loans (pawns), but there will always be retail,” he said.

Doolittle attributes the shift in his merchandise mix to a much softer gold market and to more pawnshops competing for less merchandise.

In Minnesota, the king of pawnshop hill is Brad Rixmann, who owns 29 Pawn America stores.

Rixmann has instituted a number of changes that put him and his stores ahead of the curve nationally, said Emmett Murphy, spokesman for the National Pawnbrokers Association. “Brad is an innovator,” Murphy said. “He’s diversifying the business model.”

The stores, which are expected to generate $84 million in sales this year, according to Rixmann, resemble a middle-market discounter.

“I don’t want to look just at other pawnshops for competition,” said Rixmann. “I want to compare ourselves to convenience stores and big boxes and ask how we can plug ourselves into that company.”

One example of that shift is the deliberate avoidance of the word “pawn” in the company’s two newest stores, called PA Exchange. The two stores do not have a pawn counter in them, although pawns are done at an adjoining store with a separate entrance.

These kinds of hybrid stores, minus the pawn loans, allow Rixmann and other owners to open stores where a traditional pawnshop may not be allowed because of zoning regulations.

Still, only 7.4 percent of U.S. households have used a pawn store, according to the Federal Deposit Insurance Corporation’s 2012 survey.

Some pawnshop owners are considering avoiding the retail stigma by concentrating on the more profitable piece of the business: the pawn (loan) in which customers are charged interest and fees of 7 percent to 22 percent per month on a collateral loan.

Nearly 80 percent of pawnbrokers reported that loans are the most common transaction, not retail sales or cash for gold, according to the National Pawnbrokers Association.

Whether the consumer is looking for retail or a loan, the pawn industry continues to find ways to attract customers who wouldn’t normally go into a pawnshop.

Reality shows such as “Pawn Stars” and “Storage Wars” have removed some of the stigma and encouraged people to include pawnshops when looking for collectibles and oddities. Luxury pawnshops in Las Vegas and Beverly Hills, Calif., now specialize in niches such as luxury handbags, art and wine collections, said Murphy.

Contact John Ewoldt at jeweoldt@startribune.com. Distributed by Scripps Howard News Service, www.shns.com.

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