Pawn shops expand in slow times

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: June 12, 2011 - 9:16 PM

These new retailers are hoping to raise the industry's low-rent image with classier stores and marketing strategies.

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Donna Gains tried on a ring with her son Dace Lumpkin (holding his niece Izzy) for her 49th birthday present at Pawn America in Burnsville. Gains and Lumpkin shop at the store regularly for electronics and jewelry.

Photo: Renee Jones Schneider, Star Tribune

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It's a hot, windy Tuesday afternoon and the small Pawn America parking lot in Burnsville 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 at the store. "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."

Pawn shops such as Pawn America, with 22 locations in four states, are attempting to go mainstream in the world of retail.

Although the image still suffers from the stereotype of seedy stores in seedy neighborhoods with down-on-their-luck customers, the new breed of pawn stores has a more modern footprint with uniformed employees and an upbeat welcome to shoppers as they walk in the door.

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. "Even when the economy is booming, our business is still growing. 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 of pawn shops, has nine stores in the Twin Cities and one in St. Cloud.

Max It's 11th store is being built as part of a destination development in St. Paul's East Side that includes a Chipotle, Starbucks, Dairy Queen, Cowboy Jack's restaurant and an Honest Auto shop.

Retail experts acknowledge that the new breed of pawn shops is making a dent in the retail landscape, albeit a small one, particularly in a challenged economy where consumers are cautious in their spending habits.

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

Traditionally, pawn shops provide customers money, in the form of a short-term loan or cash -- in exchange for goods. In the case of a loan, the collateral is generally held 60 to 120 days before it hits the floor if the loan is not repaid.

At the Pawn America warehouse in Burnsville, for instance, there are 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 of the goods are from the customer's garage and basement, some from grandma's attic.

Some, on rare occasion, are stolen.

State law requires photo IDs for all pawn activity -- including selling goods to the stores. The transactions are videotaped and they also are reported to a three-state law enforcement data base 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 operations division of 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 more than 100 stolen items in the city were detected by the database last year. Detection of an item stolen three years ago from the home of an attempted murder victim eventually led to the arrest and conviction last year of offenders in the case, Werner said.

"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 the Twin Cities. Rixmann battled with St. Louis Park to put a store there, and Max It owner Mark Smith was twice denied a permit by Roseville city officials.

In Fridley, a city ordinance limits the number of pawn shops to the two that currently do 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 increase in 2011 as well.

The retail floor at Pawn America changes almost daily as goods go out the door. The Burnsville store recently had a run on lawn mowers when spring rains finally ended.

With Father's Day around the corner, Pawn America has a discount on TVs. But, 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 runup in the price of silver brought in collection after collection of sterling silver tableware as well as 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 emphasis on jewelry, 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."

"A lot of our business is trading. We want to talk about what we do," said Rixmann, noting that the Exchange Street name moves the store away from some of the negative perceptions of pawn shops.

"For years people said we should just change the name. But we invested a lot of money developing Pawn America and it is very challenging to change that," he said.

Brennan said despite efforts to raise their profile, pawn shops remain low on the consumer radar.

"There's probably a lower level of perception of pawn shops among customers than recycling stores like Play it Again Sports," Brennan said. "But in a way pawn shops are like Dollar Stores [with a wide mix of merchandise] and those have become extremely successful."

David Phelps • 612-673-7269

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