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January 2009

Economic bust means boom for pawnbrokers

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The Tuesday before Christmas, snow was falling by 9 a.m. But that didn’t deter the dozen people queuing up outside American Jewelry and Loan.

At the 50,000-square-foot Detroit pawnshop, housed in a converted bowling alley, the storage areas are chockablock with televisions, DVD players, fur coats, even a Bentley that a customer pawned for $10,000, said Seth Gold, son of owner Les Gold.

As the economy worsens, American Jewelry and Loan has seen a 20 percent increase in its short-term loan business, and retail revenue has grown by $1 million since last year. These days, said Les Gold, the pawnshop is making about 600 loans daily and expects to end the year with roughly $4 million in retail sales.

Industry statistics weren’t available from the Keller, Texas-based National Pawnbrokers’ Association or from the NPA’s Michigan chapter, but other pawnbrokers say they’re making an increasing number of loans. And retail sales, down across almost all mainstream sectors, are stable or increasing at area pawnshops.

“When times are good, people are careless, and they spend too much,” said Lew Silver, owner of Southfield-based Lew Silver Diamond. “When times are bad, they don’t have the money, so they need it. We’re kind of an alternative bank, and pretty much recession-proof.”

State law limits pawnbrokers to 3 percent interest on the three-month loans they offer, with a $1 a month storage fee. It’s the lowest pawnbroker interest rate in the nation, Gold said, and that means pawnbrokers depend on volume to bring in revenue.

Southfield-based Norman’s Jewelry and Loan owner Sharon Gornbein, who handles jewelry and furs, said business is up 50 percent, averaging 192 loans a day. The retail side of the business is likely to finish the year at $1.5 million in sales, up from $1.3 million in 2007.

Silver, who only deals in jewelry, said his short-term loans have increased by 6 percent to 10 percent, or an average of about 150 loans a day. Retail sales at his 1,400-square-foot shop have remained steady, at about $1.5 million a year.

“We do about 70,000 transactions a year here, including pawn, redemptions and sales,” he said.

By law, customers have three months to redeem pawned goods, but the term can be extended if the customer pays interest and storage fees. Pawnbrokers must send thumbprints taken with every loan to law enforcement officials.

Loans are generally made for between 10 percent and 20 percent of the value, of the item, Silver said, and items are sold at 60 percent to 70 percent below retail.

Those prices, pawnbrokers say, are attracting a different kind of retail clientele.

“I’m seeing a lot more people from the suburbs,” Gornbein said.

“People that normally go to branded stores are coming here because they can save tremendous amounts,” Les Gold said.

Pawnbrokers say the cycle is predictable, that an economic downturn always means increased business. When Les Gold sees a line outside the shop, he’s not surprised to open the newspaper and read about an increase in unemployment.

The Golds say about 85 percent of pawned goods are redeemed. Silver says it’s about 92 percent at his shop. Gornbein said the redemption rate at her shop has dropped lately, from 85 percent to 82 percent.

But the business boom is finely balanced: If fewer customers redeem items, it could spell trouble for pawnbrokers, Les Gold said — redemption’s a better deal than forfeit and sales, which for the Golds include housing bulky, low-margin items like televisions and computers.

“If I’m making 600 loans a day, and (80 percent of the) people are coming back, that’s still 120 pieces a day,” he said. “I’m not selling 120 pieces a day.”