Wave of change is
hitting the pawn industry and as pawnbrokers are switching systems, Bravo Cloud
Services for Pawn wraps up March with record
month. Thanks to all of our supporters and loyal customers.
Change is becoming
inevitable with Microsoft XP discontinuing support, more government regulation,
competition outside our own industry, Internet Pawn, and the major shift of
product availability and maturation of the Gold Boom.
Microsoft XP
Microsoft XP has turned off support for its operating system
leaving computers with operating systems vulnerable. We recommend our users to upgrade to Windows
8 or Windows 7 professional, however our customers can continue to use
Microsoft XP because our services run in a protective layer on top of XP not
exposing your data or operating systems.
If you are running server based software or running on a proprietary network in your store we recommend
researching your options as each day, you are running into increased risk that
computers are open for attack.
Check all
of your computers in your company as one machine on your network can expose the
rest.
Government Regulations
Never in the history of business has the last 10 years
invoked more regulation. Can we fight
it? We should. Once these laws have been passed though, it’s
time to become compliant, whether with a manual process or a system
process.
Your business and yourself is on
the line with some States laws containing high penalties and even criminal
exposure. I have listen to our industry
insiders mock the big corporations getting hit by well notarized and public
disclosures. I call these
Helmsley’s.
The once famous heiress was
charged with a crime regarding social security taxes not being paid for her
maid. The government used this case, the
media, and the courts to send a message to the public. Over 200,000 more filings that year for
personal home employees were filed that year.
The government is keyed in on more Helmsley’s.
There are 15,000 pawnbrokers, mostly independents; the
regulators that I meet with believe 80% of small and medium size businesses
today are non-compliant. The new
creation of the Federal CFPB that our good friend Jerry Whitehead has written
about, “the new government cancer”, will be an ongoing regulatory publishing
house.
Finding efficient and accurate methods to manage the
deluge of administrative effort required by law is essential. Staying ahead of the curve here should be
a mandate, because any flag will trigger an audit, an audit will cost 10’s of thousands
dollars to complete, potentially years of aggravation to defend and clear your
business. This is assuming you have done
no wrong.
Small businesses are also known for curtailing tax related
regulations. The government is looking
for revenues. This is no secret! Don’t
put yourself, your business and your family at risk.
Personally, I was in a position in cleaning up a small
business and found the effort spent on curtailing compliance was more expensive
that paying the damn tax.
With today's systems you will find efficient methods in keeping track, picking up, and getting the work
done. Spending time at what you love to do is much more profitable than head
down in your books, forms, and compliance reports. Your time is the most valuable asset.
Allocate your time precisely and you find
happiness and extra profit.
Competition
There was virtually no competition in 1977. Big business loves high margin
businesses. The stigma of used
merchandise is widely accepted by the next generation of consumers. Pawn Stars has lowered the stigma and barrier
of entry for entrepreneurs, equity funds, angel funds, new start ups to get into
the business.
This has been a slow maturation of acceptance. It started with trade in policies. Used car lots – Now CarMax – where did all of the small car lots
go! BestBuy
is another example, now in their 10th year of in-store and online trade-in and
purchase programs. GameStop – the tiny and only game store
worth now $5B dollars.
Wal-Mart has jumped into the fray and how serious are
they! Check out their new online or in store trade program. Instant valuation
– instant e-cash to use anywhere in their store. As an example they are paying $30.00 for this
game Microsoft Xbox 360
Grand Theft Auto V – XBOX 360.
They are using Big Data Product Evaluation Analysis across all 3100
stores. See Wal-Mart Video –
here. I have heard rumors Wal-Mart
will get into the Cash for Gold business.
Then in 1999 the Internet started a whole new revolution of
commerce with no physical barriers. This is simply going to intensify as Data
becomes more useful, targeting your customers becomes more effective and you
will see every loan over $200 challenged by online pawn marketing.
Micro Lending – no one talks about this industry but it is
backed by big thinkers and a growing social conscious of usurious interest
rates be charged to the poor. By all
measures of interest charged for a loan, the pawn industry is in the top tier worldwide
to lend money legally at the high interest rates we are allowed. I have been saying for the last 30 years; it’s
a target that will be focused on in the future.
It has always been my belief that the inefficiency of our business
model is what has driven the cost of our business and the justification of our
charges. Back in the 1890’s when my
family was in the business loans were $1-$5 principal range. You made 25 cents and extra 15 cents for dry
cleaning the suit you lent on.
The
transaction cost to perform a loan is quite expensive. The regulatory requirement over the last 30
years has doubled the cost for each transaction.
Because of my fear of how the public felt about our
industry, the interest rates we charge and stigma that goes along with the
business, it has been my focus in achieving activity cost savings, driven by
the most efficient way to perform a transaction, every element and outcome.
The simple placement of item while in
loan. Where you locate an item, how
popular the item is, (what was the average number days it was held in loan),
and how many steps to the location it was placed were examples of consideration
in reducing cost.
When I was 9 - years
old, I created a location system for my Dad so he could find loans with ease. I would also flip all of the hand written
string tags we used so they were seen without touching.
My goal was to figure out how we could operate profitably
charging the lowest interest rate possible.
In Nevada, Arizona, Washington, and California where SuperPawn stores
were located, and some of the lowest state statutory interest rates charged in
the United States, the efficiency that we created over the 25 years as an
operator, created the most profitable group of stores ever.
We generated the highest average number of loans per store,
per employee. The fastest sell through
of inventory and the largest average loan portfolio per location. The highest retention of customers and new
customer acquisition, to name a few metrics we measured.
Like a mature retail business where margin and price has
been the hallmark of survival. One day
our interest rates will be challenged by competition the same way and the ones that
can operate most efficiently will be the winner.
Gold Boom – what’s next?
You probably won’t like my answer, but it’s everything nobody
wants to take. There are 800 categories
to transact on. Get back to the basics
of pawn and business and start saying yes to things your customers are bringing
you. This takes really good research,
selling skills, multiple selling channels.
Be careful of your inventory turnover, this stuff is harder
to sell and the reason why no one else wants this stuff. Don’t be afraid to sell at a short margin and
even a loss at times. Yes even a
loss. When I was in the Auto Title business,
I had a 90% redemption rate, and a negative -5% gross margin on the cars that
defaulted. I was printing money.
Don’t be
short sighted, take the smalls and bigs will come.
Gold is still out there.
Pawn broker’s competitive advantage is offering a loan rather than buy. You have the tools, be more patient, grow
your loan balance. I found that
customers that came to sell, that we turned into a loan still came back to
redeem or renew. It was at a greatly
reduced average, but it was still meaningful and helped out people that really
wanted to keep their stuff.
The future
In the following weeks I am working on a new blog, “Pawn brokering 2025”.
