CNBC's Jim Cramer Gives A "Thumbs Up" to Online Pawn Shops
A Big Upscale-Online-Boutique Pawn Shop “BOOYAH” to Jim Cramer !!!
We here at Pawntique wanted to write a blog about how the pawnshop industry has changed and that the reality of the modern pawn business is different from the perception promoted by old films and literature. But Jim Cramer, the host of Mad Money on CNBC beat us to the punch. Here is what “Cramer” had to say on a recent show.
“The pawn shop business right now is ON FIRE!!- Jim Kramer
Due to the persistently high level of unemployment and the fact real banks don’t like lending money to people with lousy credit anymore, pawnshops have seen resurgence in business. And these are no longer your “Granddad’s “ pawn shops from the great depression. These days pawn shops have become fairly strong retail contenders. Some of these shops are more than 4,000 square feet. They look great. People say they have a Target-like feel. Okay, maybe more like a Dollar Tree ambiance.
They’re also sophisticated lenders. Though some might see them as predators taking advantage of people who have nowhere else to turn to, we need pawn shops. They lend where banks won’t. They are serving a vast cohort of under banked or lightly banked consumers who can’t get credit anywhere else. Right now that segment accounts for 30% of US households and an astounding 70% of Mexican households. Persistently high unemployment has created a vast swath of people who have nowhere else to turn to when they need cash so they pawn their possessions or take out high interest rate loans against their paychecks either in stores or online.
Pawn shops are one of the few types of business that do really well when the economy stays lousy for a long period of time as it obviously is now. The economics of running a pawnshop are excellent. The more people who come in to pawn jewelry or hard goods, the more money the pawnbroker stands to make.
If you never had to pawn anything, you go off to the pawn shop, give a gold ring as collateral, they lend you money, typically 50% to 60% of the value of the collateral. Now around, 70% of the loans are fully repaid. If the loan isn’t repaid, that’s almost better for the pawnshop because they get to sell the collateral on the nonperforming loan, usually at retail margins of 40% to 45%. It’s a way to lend money with very little credit risk; certainly much less than most of the banks do.
Meanwhile the other side of the pawn shop business, the retail side is in very good shape. People looking to trade down and search for deals such as general merchandise and expensive jewelry. Plus if they can’t sell the jewelry they can melt it and sell the gold.
There are three large pawn players in the country: First Cash Financial (FCFS), EZCORP Corp. (EZPW), and Cash America (CSH). First Cash Financial is “Best of Breed” because it has the least exposure to the predatory Payday loans, which are increasingly coming under regulatory fire. First Cash has 646 stores in the US and Mexico and is growing like a week: especially south of the border adding 70 to 80 stores this year.
Bottom line, pawn shops are on fire right now in the Best of Times / Worst of Times economy. My favorite pawn player by far is First Cash Financial; Tremendous website presentation. Same store sales increase for the first half of 2011 was 17%, which was great for any retailer.”
Post by Don BattisDon Battis
is the CEO of Pawntique.