Twin Cities pawnshops give discount retail a run for its money

David Andrews has added another option to his shopping rotation: pawnshops.

The Osseo resident discovered recently that some of them are supplementing their usual assortment of guitars, TVs and jewelry with new merchandise purchased from liquidators.

Andrews has picked up a river raft, kayak and a Charbroil grill at 70 percent savings at Excel Pawn locations in Maplewood and Champlin.

"I'm a Costco member, too," he said. "But I'm saving another 30 or 40 percent off the discounters' clearance prices at pawnshops."

Pawnshops across the Twin Cities are spiffing up their stores, adding new merchandise and trying other strategies to attract customers like Andrews who wouldn't have considered the outlets in the past.

Some are considering getting out of the retail business and focusing on providing a bank alternative to the unbanked and under-banked. Other pawnshops have poured big bucks into retail buildouts and remodels and added new merchandise to augment a declining amount of pawned merchandise.

Pawnshop owners have been forced to find new sources for merchandise to stock their stores after more consumers discovered Craigslist and eBay in the recession, said Howard Grodnick, president of Jacobs Trading Co. in Hopkins. Those sources include wholesalers and liquidators such as Jacobs Trading, which purchase retailers' and manufacturers' returns, overstocks and damaged goods.

"In the past two years, the amount of merchandise we sell to pawnshops has more than quadrupled," Grodnick said.

Patrick Doolittle, owner of four Excel Pawn and Jewelry locations in Champlin, Maplewood, St. Louis Park and Shakopee, has had great success selling liquidated odd lots of patio sets, bicycles, aboveground pools and lawn mowers — many of them brand new. They're purchased from wholesalers that buy leftovers from Costco, Sam's Club, Sears, Target, Wal-Mart and Walmart.com.

"New merchandise makes up over 50 percent of my sales now," he said. "We can take a patio set that was on clearance at Sam's Club for $1,298 and sell it for $849."

Business is so good that he's adding a warehouse to store the merchandise and to distribute it to his stores. "In the future, people may take out fewer loans [pawns], but there will always be retail," he said.

Doolittle attributes the shift in his merchandise mix to a much softer gold market and to more pawnshops competing for less merchandise. Since 2007, the number of pawnshops nationwide has grown from about 7,000 to 10,000, according to U.S. Census Bureau data. The pawn industry's revenues were $15.7 billion nationwide industry in 2012, as reported by Marketdata Enterprises in Tampa, Fla.

In Minnesota, the king of pawnshop hill is Brad Rixmann, who owns 29 Pawn America stores.

Rixmann has instituted a number of changes that put him and his stores ahead of the curve nationally, said Emmett Murphy, spokesman for the National Pawnbrokers Association. "Brad is an innovator," Murphy said. "He's diversifying the business model."

Rixmann has taken bold steps in creating stores many times the size of a typical 2,000-square-foot pawnshop. His new Hopkins store is 7,000 square feet; the remodeled Mankato location is 12,000 and the Inver Grove Heights store is 33,000. At the larger stores, he's adding clothing and accessories ranging from Carhartt to Coach.

The stores, which are expected to generate $84 million in sales this year, according to Rixmann, resemble a middle-market discounter with wide aisles, cherry wood-laminate cabinetry, soft lighting and glass jewelry cases that wouldn't look out of place in Macy's.

Stores that used to have 18 employees on average now have 35, all dressed in black pants and white shirts that combine the look of a security guard and a sales associate.

"I don't want to look just at other pawnshops for competition," said Rixmann. "I want to compare ourselves to convenience stores and big boxes and ask how we can plug ourselves into that company."

One example of that shift is the deliberate avoidance of the word "pawn" in the company's two newest stores in Hopkins and St. Paul, called PA Exchange. The two stores do not have a pawn counter in them, although pawns are done at an adjoining store with a separate entrance.

There are more changes to come. Rixmann plans to add a trading option by the end of the year whereby a customer could bring in a Coach purse and exchange it for a diamond ring, for example.

These kinds of hybrid stores, minus the pawn loans, allow Rixmann and other owners to open stores where a traditional pawnshop may not be allowed because of zoning regulations.

Pawn America has been denied new or expanded locations in Robbinsdale and St. Louis Park while Max It Pawn was denied locations in Roseville, Oakdale and Hopkins.

Stigma remains for some

Despite the makeovers, it isn't enough for many shoppers. Only 7.4 percent of U.S. households have used a pawn store, according to the Federal Deposit Insurance Corporation's 2012 survey.

Jill Warner of Minnetonka was looking around at the PA Exchange store in Hopkins only because she was waiting while her husband tried to sell something. "I don't like coming to these stores," she said. "I am not sure I'm getting a fair deal."

In fact, some pawnshop owners are considering avoiding the retail stigma by concentrating on the more profitable piece of the business — the pawn (loan) in which customers are charged interest and fees of 7 to 22 percent per month on a collateral loan.

Nearly 80 percent of pawn brokers reported that loans are the most common transaction, not retail sales or cash for gold, according to the National Pawnbrokers Association.

Michael Strauss, owner of Uptown Pawn in Minneapolis, wants to limit or eliminate the retail part of his store and expand the lending. He's considering cutting overhead by holding a public auction once a week and using his retail space to create a more welcoming, discreet loan shop similar to a bank lobby.

"I want to create a bank alternative without bars on the windows for people who need a line of credit," he said.

Whether the consumer is looking for retail or a loan, the pawn industry continues to find ways to attract customers who wouldn't normally go into a pawnshop.

Reality shows such as "Pawn Stars" and "Storage Wars" have removed some of the stigma and encouraged people to include pawnshops when looking for collectibles and oddities. Luxury pawnshops in Las Vegas and Beverly Hills now specialize in niches such as luxury handbags, art and wine collections, said Murphy.

While Rixmann doesn't see that kind of specialization in the Twin Cities, he does look forward to having stores in places not normally associated with pawnshops. "I'd like to have stores at 50th and France in Edina and Grand Avenue in St. Paul," he said.

John Ewoldt • 612-673-7633