Pawnshop windfall the last few years has never been so good. Gold is good. Gold is great to loan on and the easiest to turn to cash. Most of you have converted to scrap before retail. I don’t believe that this is a wise strategy but some of you have completely abandoned retail all together. It makes common sense, customers are pinched and scraping is easy. Diamonds have become soft and the market to resell is soft as well. I believe there are a lot of issues that we need to be asking ourselves. Where is this business going in the future? What happens when customers run out of gold? How are you going to react? How much should you be lending at $1300.00 per ounce?
If logic dictates, your loan portfolio should have gone up 4 times in the last 5 years. The price of gold has. There should be a sizable increase. If 80% of your loans are gold and diamonds and you have not gained one single customer, your loans should at least be three to four times higher. If you added customers you are doing really well. Most pawnbrokers are reporting fewer loans in their safe. Many stores have showed a mild increase. Why do you think this has happened?
One interesting discussion was in the U.K. Pawnbrokers’ magazine discussing total market gold tonnage. Is there as much gold in our customer’s pockets? The jewelry business is down so much, I believe our customers will have less to pawn in the future. Pawnbrokers have 70 - 80 percent of their loans in Jewelry.
Do you believe that lending more wins customers? I believe that good customer service and more money lent on an item wins business more often and that those customers remain loyal. Let’s discuss how jewelry loans works. Let’s start with a plain gold band. First we weigh the item with a scale. We check and test the gold purity. Generally the most common is 10k, 14k, 18k, 22k, 24k, but there is also 20k and 9k. A simple calculation against your "loan price per ounce," and out comes a number. Some of you will lend against the gold based on what you think it will sell for if it defaults.
Does your system calculate the value automatically? What if this customer has a long record and has never defaulted. Would you loan more? If you had a highly desirable antique ring that would fetch a value greater than scrap value, would you lend accordingly?
Do you change what you lend daily, weekly, monthly? Do you re-price your jewelry inventory to reflect these changes? After all, what you lend is a very important decision and what your prices say on your merchandise sets an important impression as well.
I am a numbers junky and having written a million loans a year, we were able to mine the data through 5 cube views of each loan, purchase and sale. One of the fascinating finds we called psychographics, which were customer habits associated with merchandise. We looked at age, gender, race, and location. We looked at category, manufacturer and model. I was taught that you lent on an item based on what you could get for it. Would you believe that men default on their wedding bands more often than women? Answer is yes. Would you believe that some jewelry items sell in the store for 20% more than scrap in 30 days or less? Answer is yes. Would you believe that in many jewelry categories only 5% default? Answer is yes. Would you believe that many jewelry categories default 90% of the time. Answer is yes. If you had this information for an item you were going to make a loan on, would you consider these factors? The really good system doesn’t tell you what to pawn. A really good system enables you to make better decisions. We standardized the jewelry pawn inventory to 70 categories.
Let me ask you this: if you want to lend 10% more than the basic calculated amount for the plain wedding band based on information that tells you the category defaults only 10% of the time and has a quick turnover, would you lend more? Would you lend 10% more than the basic calculated amount for the plain wedding band based on a 90% default and quick turnover rate? It's your decision.
We applied supply and demand economics. We also looked at turnover rate. I like turning an item 10 times a year. I like items that have slow turnover and high margin. Before we had this system, we were forced to generalize our pawn brokering principals on all categories. This simply allows you to make decisions on the many categories that come in to your shop based on category customer habits.
This is one example of 6 million loans we studied. This information is real time, therefore up to date. As the market changes you need to make better decisions. This powered our business off the charts. We gained more customers because we lent more money every time. In some cases we would lend 50% more per gram. We never lost margin because the items never defaulted. Doesn't this make sense? Now you will have the chance to make better decisions.
I have shared many opportunities with out the need for system assistance. If you just looked at default history from your current customers, its wise to give them a benefit. It builds loyality and you have more cash on the street earning you interest.
