Pawn shops expand, trade on value and improved image - East Valley Tribune: Business

Pawn shops expand, trade on value and improved image

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Posted: Monday, June 13, 2011 2:30 pm

It's a hot Tuesday afternoon and the small Pawn America parking lot in the Twin Cities suburb of Burnsville, Minn., is nearly full.

Inside, shoppers scour the aisles for jewelry, electronics, golf clubs and assorted power tools. Tuesday also is the day for the weekly DVD special: two for $5.

Donna Gains is picking out a diamond ring from the glass-enclosed jewelry counter. It's a gift from her son, Dace Lumpkin.

"It's my 49th birthday," Gains said.

Gains and Lumpkin are regulars. "They're one of my original customers," said sales clerk Michael White.

"We come here all the time for electronics and jewelry," said Lumpkin. "This is the best place to find TVs."

Pawnshops such as Pawn America, with 22 locations in four states, are attempting to become mainstream retailers.

Although the image still suffers from the stereotype of seedy stores in seedy neighborhoods, the new breed of pawn stores has uniformed employees and an upbeat welcome for shoppers.

Pawn America expects to do $63 million in sales this year, up from $57 million in 2010 and $47 million in 2009.

"Our success is our branding," said owner Brad Rixmann. "... Pawn stores intrigue people. We have a lot of repeat business because people never know what will be on sale the next day."

Max It Pawn, another Minnesota-based chain, has nine stores in the Twin Cities and one in St. Cloud. Its 11th is being built as part of a destination development in St. Paul's East Side.

Retail experts acknowledge that pawn shops are making a dent in the retail landscape, albeit a small one, particularly in a challenged economy.

"They've been very opportunistic," Dave Brennan, co-chairman of the Institute for Retailing Excellence at the University of St. Thomas said of these retailers. "... They've taken the concept of a non-bank bank and expanded it into a value-and-discount retail operation."

Traditionally, pawnshops provide customers with a short-term loan or cash -- in exchange for goods. The collateral generally gets held 60 to 120 days before it hits the floor if the loan is not repaid.

The Pawn America warehouse in Burnsville has rows of musical instruments, motorcycles, snowmobiles and long-playing music albums. There's space for gold and silver coins as well as Rolex watches and expensive rings.

Some goods are from customers' garages and basements, some from grandma's attic. Some, on rare occasion, are stolen.

Minnesota law requires photo IDs for all pawn activity. Transactions are videotaped and reported to a three-state law enforcement database where the goods can matched against missing items.

"The pawn industry is a legitimate business. Unfortunately, it provides an opportunity for criminal activity," said Eric Werner, a captain in the Burnsville Police Department. "As the industry grows, the potential for that will grow too."

Werner said Burnsville has 16 pawn and secondhand goods operations under its jurisdiction. He said the database detected more than 100 stolen items in the city last year.

"If we have a good relationship with a business, then it can serve both of our needs," Werner said.

Pawn store expansion has often been controversial.

In nearby Fridley, a city ordinance limits the number of pawnshops to the two currently doing business there -- Pawn America and Max It.

"It's a growth industry," said Capt. Bob Rewitzer of the Fridley Police Department. Rewitzer said transactions at those two stores were up 16 percent in 2010 and are on pace to increase in 2011 as well.

Pawn America's retail floor changes almost daily as goods go out the door. As with traditional retailers, the peak season starts in October and runs through the Christmas holiday season.

Half of the store's sales are jewelry, but a recent run-up in silver prices brought in collection after collection of sterling silver tableware and old coins.

Rixmann said the Pawn America demographic is male, age 25 to 40, with annual income ranging from $30,000 to "low six figures." With the jewelry emphasis, Rixmann said more women are starting to shop in his stores.

Pawn America recently began offering an extended service plan that provides buyers with a six-month warranty on goods for 10 percent of the purchase price.

Rixmann said he spends about $3 million a year in marketing with the emphasis on TV and radio.

But Rixmann is trying a marketing experiment with a new store in the Milwaukee area that will be called "Exchange Street." The name moves the store away from some negative perceptions of pawnshops.

"A lot of our business is trading," Rixmann said. "We want to talk about what we do."

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