Now that the economy is improving, pawn shop owners are preparing for a change in business. During the recession, consumers were visiting pawn shops to sell their gold jewelry. These days, consumers are back to using pawn shops to secure short-term loans. The latest report from the National Pawnbrokers Association indicates that small 30-day loans are the most popular product.
Gold is Scarce
With the melt down of the U.S. economy in 2009, the gold market witnessed an unprecedented upswing in prices, which skyrocketed to over $1,800 per ounce. This trend encouraged many U.S. consumers to sell their gold and jewelry to local pawn stores and other cash-for-gold businesses. Consequently, gold transactions were a driving force in the pawn industry’ 2009 to 2012 growth spurt.
Gold-based transactions seemed to decline in 2013. Surveyed pawnbrokers reported up to a 35 percent decrease in gold buying transactions. Ben Levinson, president of the National Pawnbrokers Association, clarifies, “While pawn stores are experiencing a decrease in gold transactions from recent years, the NPA perceives this as more of a leveling off from sales driven by the unusually high price of gold during the height of the spike.”
Pawn Loans are Strong and Growing
Seventy percent of surveyed pawnbrokers reported that the quantity and dollar amount of pawn loans have either increased or stayed the same. The NPA reports that on a national average, a typical pawn loan is less than $150 for 30 days. The most recent Trend Survey reports that 88 percent of pawnbrokers cite their most common transaction is a pawn loan. While gold-based transactions and retail sales are important to the pawn store business model, these transactions make up a small percentage of the overall business.
Decrease in Retail Sales
While the quantity and dollar amount of pawn loans increased or stayed the same, over half of surveyed NPA members experienced as much as a 25 percent decline in retail sales as consumers continue to act cautiously with retail spending. “The pawn business model is complex,” added Levinson.
“While many stores benefited from an increase in the number of loans and loan amounts, there were also many shops that suffered from sluggish retail sales.” Business across the board did increase at pawn stores as Americans continued to seek non-recourse, collateral based loans.
The NPA’s forecast for the pawn industry is positive. Over 85 percent of pawn store owners predict that the number of pawn loans will increase in the upcoming year, and 60 percent project that retail sales will either increase or stay the same.
“The pawn industry focuses on providing loans to our customers who are in need,” said Levinson. “Our customers rely on this unique form of lending that banks and other lending institutions don’t offer. The trends and price of precious metals will always fluctuate, but pawn stores will continue to provide safety-net loans to families that encounter sudden financial emergencies.”
In the past 12 months, nearly 14% of U.S. adults have used the services of a pawn shop. About 60% of these consumers have household incomes of $50,000 or less. While these consumers may have limited income, they're might be hoping to win big at games of chance. Pawn shop customers over-index in their intent to purchase lottery tickets and visit a casino in the next 12 months. About 23% of pawn shop customers have taken action as a result of ads they noticed on billboard or other out-of-home formats in the past 30 days. This rate is much higher than average.
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