Pawn shops offer a way for people to get fast cash for loaned items, or for them to shop for items at a discount.
When the pandemic hit, pawn shops were deemed essential and stayed open, but the reasons people came in were different than what was expected.
“This is how we test diamonds, it’s a diamond tester” Michael Mack, owner of Max Pawn, said while explaining how pawn shops figure out the worth of a ring. “And then we weigh.”
This is part of the process at a pawn shop, customers bring an item in and an employee assesses it. They make an offer based on value. If you say yes, you walk out the door with cash. You either keep the money and the shop eventually puts your stuff up for sale, or you bring the money back and reclaim your items.
Like all industries, COVID-19 has caused some change.
“Business is difficult,” Mack said. “All of these businesses are not able to do business the way they used to, and pawn shops are no different.”
However, pawn shops were deemed essential.
“We’re a financial institution. We remained open this entire time,” said Andy Zimmerman, CFO at Gold & Silver Pawn Shop.
There to provide loans for people in need of fast cash, sometimes to those who don’t have access to a bank.
“Unbanked and underbanked, they typically refer to a consumer that finds your typical bank branch not really meet their needs,” said Jonathan Polter, CEO of the app PawnGuru.
The app connects customers with pawn shops, without having to go into a store first.
“Traditional banks make money off a variety of transactions and because of the financial situation of the unbanked and underbanked consumer, they’re typically not credit-worthy of many of those other products,” Polter said.
This was important during the last recession.
“When 2008 hit, pawn shops became more prevalent because banks were giving less money to everyone. Before, pawn shops catered to a lower class middle class,” Mack explained. “We had people come in and get a loan on a Ferrari to pay their private school bill.”
That’s what shop owners said they expected when the economy took a hit in March.
“The anticipation was that the loan balances or the pawns would increase but, in fact, it’s worked the other way, with the federal stimulus, it seems that a lot of the customers typical of a pawn shop have in essence received a raise,” Zimmerman said.
Zimmerman works at the Gold & Silver Pawn Shop in Las Vegas, a popular shop and tourist destination.
“The outflow of goods versus the inflow of goods has been a surprise to everyone in the industry,” he said.
Pawn shops can’t even keep certain items in stock, such as electronics, guns, and jewelry.
“We were just selling through thousands of ounces of silver,” Zimmerman said. “The stimulus really had an impact on people’s behavior.”
“Also bicycles, everyone wanted to ride a bicycle, so bikes are gone,” Mack said.
This left many shops with low inventory, and lots of cash.
“Right now, I don’t know that the industry has ever seen this before,” Polter explained. “Their industry is dried up and at the same time, they haven’t really had the time to replenish it.”
“Pawn shops are not built to sit on cash,” Polter said. “They’re built to put cash into consumers pockets and that’s how they make money.”
Mack’s shop is working with customers like many pawn shops are, offering curbside pickup or lowering loan interest rates for a while.
“The asset is the customer,” he said.
But without more loans coming in and a low inventory of items, pawn shop owners said there could be trouble further down the line.
“We've been affected and if you drive to any other pawn shops there's nothing in their stores at all. So for that to come back we need a normal economy to really get loans and sell things,” Mack said.