CompuPawn Industry Information
Pawnshop Industry
Pawnbrokers derive income principally from two or sometimes three income streams: Interest and service charges on money lent. and Profits on the sale of unredeemed merchandise, and Profits from ancillary specialty services, such as: check cashing services paycheck advances money order sales portable phone and beeper sales
Simply described, pawnbrokers, also known as collateral loan brokers, make loans at relatively high interest rates based purely on the intrinsic value of the collateral. Checking the customer's credit history is not necessary because only the value of the item being pawned is considered as collateral. If the borrower is unable to repay the loan plus the accrued interest within a given time period, the pawnbroker "forecloses" on the collateral and puts it up for sale.
A typical transaction begins with a potential borrower coming into a pawnshop with the item he or she wants to pledge. The pawnbroker then determines how much to loan the patron for the item. Loans are issued at a rate of about one-third to one-half of the price the broker can expect to receive for the sale of a good during the worst of times. This assures that the pawnbroker will make a profit.
Background
Reaching back before biblical times, pawnbroking has thrived, either overtly or covertly, in most societies. As mankind's oldest financial institution, pawnbroking carries on a tradition with a rich history. Pawnbroking can be traced back at least 3,000 years to ancient China, and has been found in the earliest written histories of Greek and Roman civilizations. Through the millennia, it has survived overt hostility from Jesus Christ (who threw the money lenders out of the temple) and Shakespearean admonition ("Neither a borrower, nor a lender be" - Hamlet, Act: I, Scene: iii.) During the Middle Ages, certain usury laws imposed by the Church prohibited the charging of interest on loans, thus limiting pawnbroking to people who had religious beliefs outside of the Church. Out of economic necessity, and because of problems in the banking system, pawnshops made resurgence in later years. The House of the Lombards operated pawnshops throughout Europe. They even counted royalty, such as King Edward III of England, among their clientele during the 14th century. The symbol of the Lombards' operations was the three gold balls that remain the trademark of pawnshops in current times even today. One particularly noteworthy transaction occurred in the 15th Century, when the Spanish queen pawned her jewels to finance an exploratory voyage by a young man named Christopher Columbus.Today, on the very same continent he discovered, the pawn industry continues to prosper and grow, historically immune from fluctuations in the economy. The industry does well in boom economies and tends to do even better during periods of high unemployment and/or tight credit.In contrast to an image held by much of the public and oft promoted by Hollywood, the modern pawnshop is likely to be a clean, well-lit, professionally managed business that serves a wide variety of clientele. A number of pawn firms operate multiple of stores in a number of cities. There are several publicly-traded companies with one of the largest, Cash America International (NYSE:PWN), boasting more than 450 stores with total revenues of over $370 million. The industry caters to individuals of all incomes and social strata. The last decade has seen the emergence of many upscale pawnshops that negotiate over glasses of champagne, confidential transactions involving Lear Jets, Rolls-Royces, Mercedes Benz, gold Rolex watches and six karat diamonds. Typical customers include corporate executives, stock brokers, actors and motion picture directors or producers.The majority of pawnshop customers, however, are low-income, blue-collar, hourly wage earners that are most affected by layoffs and employment cutbacks. Usually denied credit from traditional lending sources, they turn to pawnshops as their only possible lending source.Generally, pawnshops divide into two categories: the "general merchandise " shops which accept as collateral almost any conveniently stored goods of value, and "high value" shops which concentrate exclusively on jewelry and expensive items. For stores dealing in general merchandise, an approximate breakdown of their inventory is typically:
Jewelry ..................................50 % Consumer Electronics............ 20 % Firearms.................................10 % Tools .....................................10 % Miscellaneous items...............10 %   The industry as a whole earns enormous profits and well-managed pawnshops do significantly better than industry averages. In 1988, the last year for which comprehensive data is currently available, the industry generated $5 billion in sales on pawn loans of $1.72 billion. In that year, there was a national average of one pawnshop for every 36,000 people. Since that time, the number of pawnshops has increased by 50 %, drawn by the potential for significant profits in a down economy. Today in the United States, there are more than 9,000 registered pawnshop owners. When this figure is combined with the 3,000 collateral loan dealers and 2,000 second-hand dealers in America, the number of locations that deal in loans collateralized by personal property, exceeds 14,000. The pawnshop "continuum" ranges from small "Mom and Pop" stores, to larger single store operations, multi-store firms, and publicly traded chains with multiple stores in a number of cities.
	Pawnbrokering Facts
In 1911, there were 1,976 licensed pawnbrokers in the country, or about one for every 45,700 citizens. In 1988, there were approximately 6,900 pawnshops in the United States, one for every two commercial banks. Pawnshops made about 35 million loans in 1988. Between 70 and 80% of all items pawned are redeemed. As many as 10 percent of the adult population are served by pawnshops each year. According to an article entitled "Cash Customers" in Forbes Magazine (May 1993), 25 million households representing more than 75 million people do not have a bank account. People without bank accounts would find it extremely difficult, and most likely impossible, to obtain a credit card or obtain a loan from any other legitimate source than a pawnbroker. Pawnshop clientele are represented in a range of ages (must be 19 or older), races and genders with male and female customers being about equal. As the public becomes more educated about the types of services pawnbrokers provide, pawnshops are serving a wider and more diverse clientele. All items received by a pawnbroker must to be reported to the city and/or state's police department, therefore reducing the chance of a consumer receiving stolen property. The pawn industry is one of the most regulated in the country. Most regulation has been initiated, sponsored and supported by pawnbrokers. Regulatory agencies include the Office of Consumer Credit and Law Enforcement on a local and national level. Pawnbrokers have state, regional and national industry associations which work at self-policing the industry. In the case of public companies, the Federal Securities and Exchange Commission oversees their operations. Pawnshops serve as a source of credit to millions of Americans, providing average small secured loans ($50 to $100) for a brief time period (two to four months). Membership in the National Pawnbrokers Association has in risen from 50 in 1988 to more than 3000 today. Free enterprise in the form of pawnbroking has reappeared in Russia and communist states such as China to fill the gaps of their national banking system.
	Regulation
Regulations on the pawn industry vary widely from state to state, as do reporting and record keeping requirements. In most states, pawnshops may not exceed usury limits on loans, and most states require pawnbrokers to keep inventory records that can assist the police identify and recover stolen property. Federal law requires pawnshops to register all firearm transactions and record them in a permanent Firearm Acquisition and Disposition Log, which is presented to auditors of the U.S. Treasury Department's Bureau of Alcohol, Tobacco and Firearms.With the growth of the pawn industry, a number of states have begun reviewing the industry to determine if there is a need for additional regulations and reporting requirements. Some, like Texas, have set strict standards for new pawnshop licenses.
	Market Trends
	Because of changing economic, social and legal conditions, analysts predict that the industry will have a stabilized growth rate of from 10% to 20% through the next several years. This assessment is based on several factors: Historic growth regardless of economy -- Pawnshops do best during periods of high unemployment and tight money when customers seek to convert property to cash. They also do extremely well during periods of economic expansion, when loans tend to be short term and used for meeting unexpected bills for automobile repairs, appliance replacement or medical expenses. Favorable lending climate -- Many states have or currently are revising their usury and lending laws in ways that are favorable to the pawn industry. After favorable changes in Georgia's statutes, that state's ranking with respect to number of pawnshops rose from fifth to third. Professionalism and consolidation -- A nationwide consolidation trend has seen "super stores" force out smaller, marginal operators in such industries as retailing, computer sales, video rentals, office supplies, pet supplies and others. Similar consolidation is occurring in the pawn industry, with the growth of large, multi-store, multi-city operations owned by publicly traded corporations such as Cash America, E.Z. Pawn, First Cash and U.S. Pawn. These companies carefully design their stores, place them on well-lit thoroughfares and provide plenty of parking. A courteous, well-trained staff serves customers in a friendly atmosphere. While the large chains currently represent only 10% of the pawn industry, they are in a position to grow rapidly. With the active support of the larger operators, a number of states have established laws that contribute to pawnshop consolidation. Texas, for example, recently passed legislation requiring prospective pawnshops targeted for larger communities to demonstrate "public need" based on a demographic study, and maintain an investment of $150,000 in unencumbered capital. Increased emphases on sales -- Many pawnbrokers are competing with traditional retail stores by selling new and used merchandise at significant discounts. Some offer strong customer service and product warranties, and most accept checks and credit cards for purchases. Improving public image -- Sensitive to the historic, unfavorable image of pawnshops, many modern pawnshop operators are striving to win public approval and acceptance. Modern pawnshop owners are actively participating in civic clubs and community organizations, and are publicly supporting fund raising events for worthwhile public causes.
	Industry consolidation and professionalism, as well as strengthening government regulations and reporting requirements, tend to favor VCS because the company has established a dominant position as the leading provider of automated management systems to the industry. VCS presently provides the industry's only integrated management and accounting system capable of service large, multi-store operations. The general health of the industry, and its ability to prosper regardless of economic fluctuations, provides the company with a steady, dependable customer base with a long history of continuing growth.