Great Software efficency with elegant design - geeky

Efficient software design means many things. For me, it means: effort utilizing software which creates more value than the effort invested. I like to think my time has value, and when I use a software product; its output must have a higher value. I require a return for the investment I paid for the product, but more importantly, I need a return for my effort while utilizing the product. This is not the case with many software products. Have you ever felt that it requires more work to use a computer for a task? Not only is this an important issue of your time, but for an employee’s use of time as well. Our costs go up ever year, and if we don’t utilize our employee’s efforts wisely, every day it costs us more to operate. We wanted our stores effort to be utilized and in effect re-directed to activities that had a higher value contribution. We wanted our systems to do the lifting of mundane low proposition tasks.

Our tech team’s core competency was their ability to fully understand what Pawnbrokers were asking for. "We speak your language." We have developed software for the needs of a single store, or 2 stores, and all the way up to 50 stores. We also scoped an entire system project for a national chain of pawnshops with over 800 locations. The needs and requirements for each size store group are very different. Our experience is unparallel. Our expectation, with your help, will be to deliver a simple product driven by a significant engine. Your comments, experiences, and suggestions coupled with our experience will translate into efficient code, then a feature or product.

All of today's pawn software products are very much the same, and offer very little difference. In summary, current software products distribute data, print tickets, and create reports. This is the stuff that DOS operating system made possible. Have you seen many other changes since then?

I am going to share my philosophy of good practices in facilitating pawn and sales transactions. It is not necessary to agree with my philosophy. I warn you that I am a contrarian by nature. It is intended to stimulate your thinking and discover new ways in delivering better results.

Your costs to operate a Pawnshop are very similar to any retail storefront. There are two primary transactions: pawn and sales transactions. There are costs associated in selling an item and there are different costs associated with pawning or buying an item. The most important costs are our human capital. Employees and owners facilitate these transactions.

A requirement in operating stores is to facilitate these transactions in the best way possible. Delivering good customer service is an essential ingredient in facilitating successful transactions. Avoiding mishaps translates to higher customer satisfaction. We need to be able to focus on our customers’ needs. Our software should enable you to focus on your customers. So, how do we do this?

We start by dissecting transactions and look for direct paths in accomplishing a task. We leverage every transaction. How can we take a required effort and spread that effort over other tasks? We look for relationships between transactions. We must facilitate the collection of information and we should only be asked to perform such tasks once. Avoiding mishaps translates to a higher customer satisfaction and should save you aggravation. I would like to offer an example of how this process takes form with the challenge in eliminating missing loans because of operational error.

Redeeming an item. Pawnbrokers have pawn-isms. A redemption is when a customer picks up a loan or pawn. On a side note, what is your pawn-ism for this type of transaction? We experienced that every so often we would give out the wrong item. This was one of many reasons why a loan came up missing. When we introduced bar codes and scanners with tickets and labels we saw this operating error as an opportunity to eliminate this mistake. Our mandate requires simplicity. Simplicity is only examined on what effort is being required in facilitating the process and software in the store. Our solution was creating a process utilizing a hand held scanner at the loan counter. Our system required the item(s) barcode to be scanned, (entered by keypad if not legible), before the transaction could be completed. The final receipt would not be printed, the employee and workstation unable to move from the disposition screen if this process was not followed. The scan took less than 2 seconds per item. This process reduced missing loans by 25%.

Retrieving loans quickly was one of the top 5 customer service requirements. Customers want their stuff back quickly and store operators want to spend as little time delivering those items to the customer. Losing a loan was a rare occurrence and we attributed most of these occurrences historically to theft. We were surprised that scanning loans and eliminating this mistake was such a significant element in missing loans. Any time that you can save face time explaining to a customer that their loan is missing makes for a better day.

In conclusion, we created a low effort process for the stores to perform. Once our staff was familiar with the process we measured significant increase in redemption capacity. Simply, we believe that removing the manual check was a heavier process than scanning.

The engineering and process review was quite complex and created an extra staging queue, but the simplest executables for the store employees makes for happy change and quick adoption.

Comments or suggestions?

Does your store look like shit

Most pawnshops look terrible. In fact, they look like shit. I am sorry, but many pawnshops do and yours probably doesn't, but I need to catch your attention somehow!!! So why is a guy sharing technology process, theory, and solutions getting into the way your store looks? I believe it could change this Industry. I am going to share with you my one of my secrets. This was one of the most significant changes we ever introduced to our Pawnshops.

How to wrap a cord. I spent 25 years at Superpawn teaching our employees how to wrap a cord. THIS IS NO JOKE! This is where it starts. My 9-year-old son and 2 older daughters all know how to wrap a cord. It’s really important!

Cold facts. Customers will pick up an item more frequently when the cord is wrapped. Customers not only purchase more frequently, but they pay more when the cord is wrapped.

It’s not just wrapping the cord. The cord needs to be wrapped tight. No loose ends. The cord needs to look the same way it came out of the box. In addition, all the cords in your store need to look consistent as well. One cord not wrapped really stands out. I love product merchandising. It makes a difference. So get started and wrap your cords and see and feel the difference.  Your customers will.  Let me know what you think?

How far behind the curve are you? Technology

Check out this Video - DID YOU KNOW! ON YouTube.

Pretty interesting stuff. I think it is fair to say that if you have been using the same software for the last 3 years, 5 years, 10 years or more, it's time to consider alternatives. If you are using any of the widely used products, these are 20 plus years old. I promise that as you follow along with my articles, you will be better prepared in making a choice for the future. Participating with your suggestions, you might see your ideas emerge in our new product.

My passion and love for this business is the driving force to make this industry better. When I look at the state of our economy I ask myself, "What is going to make our economy better?” I look into the mirror with a blank stare, but "Can the Pawn Industry be better? Yeah! In lots of ways." I believe that when you put your store keys into the lock of your front door each morning, you would like your operations to be better. You will find this exercise offers a wide range of ideas, "low hanging fruit," to better your operation.

You are stuck and you don't know it! It's important to have an understanding of how software is created. I will keep this simple, so don't go yet! This process begins with a base architecture (like plans of a basement for a house); asking questions become requirements of the new product. So when your current system was designed long ago, its most important requirement was to print a ticket. That was so cool then. Today all of the current Pawnshop software developed in the 70's and 80's still sits on that base architecture. Problem is, over the years, they have built 4 more stories on top of that original house. A symptom is the difficulty of these providers adding functionality. Even the simplest changes become systemic. Have you experienced this?

They have all grinded to a halt and haven't offered substantial change for the last 10 years and it's getting worse. It becomes extremely difficult and expensive to remodel and add functionality. It's not their fault; the plumbing was built for this specific house. If you watched the video, the plumbing needs to be changed.

What gets exasperated for these system companies is that the business rules change along with technology; which in turn saps all of their resources, resulting in no time for a rebuild. Unless someone comes along with a game changing invention, you will remain stuck. Why change unless it's worth it? It is the same analogy as Microsoft and Google/Internet.

We are going to offer the game changer. We have 15 engineers working on this project. Our planned launch is March of 2011. This will be our sole focus—building a base architecture for 1000's of individual pawnshops. Utilizing Cloud Computing and the Internet. We will be partnering with EBay and Amazon and many more.

Stay tuned for more details and thanks for your time.

Personal experience - 11 years old - A.T.F.

Special Agent Graf of the A.T.F. - Alcohol Tobacco and Firearms - 1969. I was 11 years old and had spent 25% of my new life working in my dad’s pawnshop. My dad loved the formidable bright yellow store-front; it resembled the "Golden Ferrari" baked yellow resin glow, thickly painted over layers of previous paint coatings. The double swinging doors were extremely heavy, but had a very welcoming feature. The store hid under the Blue Bird Motel, just west of the Silver Dollar Casino. A 21-room weekly flea bag of a place that could have been a movie set for an Alfred Hitchcock thriller. That motel just scared me. I never went up those stairs or ever noticed a single patron. Over the door breezeway was "Cameo Jewelry and Loan," proudly painted on a 4 foot half moon scalloped canopy. It was a classic city store pawnshop.

Our landlord was the famous Lincoln Fitzgerald, ole Fitz as they would say. A Nevada icon and an ex-Chicago mobster. It was rumored that he had stole money from his partners as the trusted accountant. Lincoln owned and operated the Nevada Club—it was the best place to work in Nevada. Every employee got their weekly pay in cash and a free pack of smokes. He paid for emergency medical care for all of his employees.
Lincoln had escaped an assassination drive-by shooting plot, leaving him permanently crippled after spending 6 months in the hospital surviving the shooting in 1949. His former associates, "The Purple Gang" of Chicago were never allowed back into Nevada. Lincoln would rarely be seen away from his casino. He remained a recluse living on the second floor of the Nevada Club till he died in 1981. Lincoln must have been a reliable tax payer though, the state of Nevada and Reno Police Department provided safe harbor from his foes of the Mid West.

For whatever reason, Lincoln liked my dad and referred to him as the “kid”. My dad had only met him a few times over the 20 year business relationship. But for the first 15 years he never raised his original rent from $200.00 per month including utilities. Dad prided himself maintaining the store and never bothering ole Fitz.

No heat and no bathroom. It was just my mom and dad for the first 10 years. They had stories of former employee’s but never a positive experience. My dad used to always remind me to check the chamber of a firearm. Growing up around all those guns was like a gun safety course on steroids. We used to see collections of guns from wars, trap shooters, and hunters. My dad was a city boy from the Bay Area and had no prior experience with guns. Rather he was knowledgeable in jewelry having been formerly employed at Milan’s and Crescent Jewelers in Oakland, California. One day my dad pulled out a .22 caliber semi-auto rifle from a gun case with a bullet shell stuck in the chamber, and bang, straight into the water radiator that heated the store. No more heat and he never repaired it. I couldn’t ever figure out why he never fixed that misfire. Maybe it was too expensive? Maybe he just didn't want to tell ole Fitz? Whether ego or embarrassment, it got frigging cold in that shop. It was a winter day, one where frost covered the inside of the store front windows… out came the tin snips to release a supply of hot air from the Motels heating vent. Ahhh!
Guns, guns, guns. Reno became an armory during the 60's. California residents would drive to the city to purchase a firearm without any registration requirement. Everyone sold guns. The downtown store, "Arch Drugs," had pistols behind the cashier stacked next to the prophylactics. I am not kidding. Back in those days there was no identification check, no forms, and no name on the receipt. $59 bucks for a Smith & Wesson in the box brand new, plus 2% sales tax. We sold 15 - 30 guns a day. We made a quick profit of 10 - 12 dollars a gun. My dad’s store became one of the busiest gun stores in Reno. At one time we had the most complete commemorative collections of firearms in the West. They were so beautiful in their handmade wooden presentation boxes.
It was the worst day of my mom and dad's life, but a turning point for the business. In 1968, congress passed the gun control act. The law enacted a federal system and laws to license the sellers and prohibit undesirables from purchasing a gun. Additionally, guns were only to be purchased by residents from their own state. No more gun sales to Californians from that date on. This also created a vast new federal police agency throughout the United States. Now, this law required the yellow 4473 form to be filled out by the customer before a purchase could be completed. Even at 10 years old, I could see that this effort was a complete waste of time. The form never left the store. And even today the collection of 4473 forms of every gun sold in America since 1968 is archived in the seller’s store. No one ever reviewed the transaction. How was this going to protect the public from undesirables? It was a good law passed but poor enactment and administration. At least the paperwork created by the pawn transaction was picked up by the local Police department's pawn detail. The Brady act created additional checks that each state’s regulatory agency is required to enforce and I can honestly say it is much better effort. The ATF is attempting an online registration effort, but it will take 50 years till we will see change. I hope that gun registration becomes an effective and meaningful effort—not the false sense of gun control that citizens believe the government is providing.
But in 1969, nearly a year to the day, after the gun control act was passed, Agent Graf and his newly assembled team, came to my mom and dad's small 2100 square foot store with guns a brazen, 15 agents with one thing in mind. One, to turn over every square inch of the store and two, put my mom and dad in handcuffs and drag them off to jail. The Miranda rights ring in my head from that day. I was 11 years old then, standing in shock or coma, but in total disbelief of what was taking place. My heart was pounding, my thoughts were panicked, and I tried to remain brave. Rather I gave in to my fragile emotion while making eye contact with my mom. She turned her head around with a freighted expression; one I had never seen her show. Not one word was spoken.
“Never again”—it is an expression Jewish holocaust survivors pray. As I reflect on this moment today, I realize that 25 years before my mother’s arrest, she experienced something similar to me. Her father was taken away in the same manner in Poland by the SS German storm troopers, never to see each other again.
It is still not clear in my mind, but I remember sitting alone for what seemed to be an eternity. The agents were all dressed like the "Men in Black." This was the agencies very first raid, arrest, and eventual hearing in Federal Court made under the laws of the gun control act. They were walking in circles, handling the firearms like amateurs, taking notes, auditing, and searching for any signs of deception. I could not believe my eyes of the carelessness and arrogance. No one said a word to me.

My head between my hands slumped in a chair, and I felt a soothing tap on my shoulders. It was my uncle Dennis, he grabbed my hand, picked me up and rescued me from our U.S. Governments agency A.T.F. Agent in charge Graf calculated his raid on a Friday early evening before a three-day weekend. No Judge around to set bail. As to what I was imagining, it was clear that my parents were behind bars like Mayberry RFD. To this day the three of us have never discussed that day.

Paul Bible, (the son of late distinguished U.S. Senator of Nevada, Alan Bible) one of those rare individuals that became an attorney, and a friend of the family, came to my mom and dad's aid. He found a Judge who was weekending with his family in Lake Tahoe. The judge drove back to Reno and procured my parents release by midnight. Thanks Paul from the bottom of my heart.

I have weird visual memories of that night. My uncle, grandfather, and dad gathering around our small dining room. It’s the only time that I remember all three together. They were all pawnbrokers. They were all competitors operating within a 3 block radius in Downtown Reno. Two sons and a father—the room felt worse than death. My grandfather assumed my dad was guilty, my uncle knew better, and my dad was frightened to death. This was the federal government of the U.S. vs. pawnbroker.
Another lifetime seemed to pass. 21 months consumed by court arraignments, briefs, subpoenas, meetings, the liquidation of over 1200 firearms and the suspension of licensure. The business was in shambles. Our family seemed to be in a bubble. The 27 counts were eventually reduced to 1 count. My father would never accept his personal reputation to be tarnished or his record blemished. His ethos and favorite saying is, "my word is his bond." It was later found that Agent Graf had used entrapment and false charges. In exchange to end this fiasco and to save face for the A.T.F. inaugural case, my father’s corporation accepted the plea and agreed not to sell firearms. Ten years later (I was 22), after joining my father’s business, one of my first personal assignments was accomplished. I had my father’s license reinstated and the corporation’s conviction expunged. The Director of the San Francisco A.T.F. office, Michael Bodisco, assisted me in exonerating my father.
A silver lining surrounds this experience, and in fact the gold and diamond business. One they never knew existed! During those 21 months, the revenues of the business had been slashed. Guns were 80 percent of the business. The liquidation of the inventory had to be used for operating expenses and legal costs. The remaining few bucks were used to purchase jewelry inventory. Reno had become a pretty good tourist destination and tourists loved to shop in pawnshops. The Jewelry business became mom and dad's newfound category and a trajectory to success.

It's up to you but the game business is a great traffic builder and will be around for a long time because the vintage gamers like the old consoles and these games will not be downloadable. Zero Wing (Sega Genesis, 1991)  $99 at Half.com.  Even the average condition cartridge will bring $20.00 and is worth a $5.00 - $10.00 loan.  You may not be old enough to be familiar with these names below, but these are all of the platforms of game systems over the last 30 years and continue to be valuable.

In order to fully execute this idea your system needs to handle all of the lifting into the eCommerce space because the average sales price of the items are 10 - 20 bucks  and you only can afford to put the item into a envelope without any other effort.  These items need to on the web because this is not a main stream product and you can't  count on walk in business, but this business rocks when customers can see items on the web.  Shoppers don't have time to drive to your store to shop for a $20 dollar item, but they will drive to purchase if they can browse online and see the item is in your store.  Make sense?  Our system will also enable the customer to purchase the item online to secure the purchase, and then pick up the item in your store.  This was an extraordinary discovery that we experiecned and we believe is a game changing  platform for pawnshops.  Bravo will do this. This can also be done with VHS and Video Movies, you will see this market on Half.com.

Important tip.  This is a fabulous market if you have time in your store.  It would be like a super GameStop.   GameStop stores has a similar system like PRIMA.  They take items from customers, second hand, and resell them online or in their store.  They do not handle vintage games and this is the opportunity. This can be done without our system but requires a lot of time to do well.  Here is how it works with BRAVO.

BRAVO will have every SKU in the system, so when a customer comes in your store with a number (up 250) of games you would scan the game.  The system would locate the item record and give you an estimate to loan or buy. This is Bravo's estimator. From the same screen you will be able to quick search EBay or Half to verify value.  At this time you decide what to loan or buy.  This empowers you with additional information to make a better choice. How much would you lend on this Super Mario game?  This is a important decision if you want to build a game business, my experience suggests you have to offer fair value and not the customary $1.00 or .50 cent rule.  The gamers that have these vintage games would love to be able pawn their games, but no one gives fair value!  The redemption rate is similar to guitars.  Tip - shrink wrap these games while they are in pawn.

What is beautiful about this opportunity is with Bravo, you will have every game in your store for sale on the web.  These gamers research and find these games from all over the world and even if they live around the corner from your store.  Shipping is a snap with Media mail by USPS.   MaxPawn.com will have every game listed by condition.   And of course if you want to sell these games on EBay you can do so with our integrated EBay Blackthorne autolister.  Get ready for an exciting new business opportunity.

• Classic Console Games
• Macintosh Games
• Neo Geo
• Nintendo 64
• Nintendo DS 
• Nintendo Game Boy   
• Nintendo Game Boy Advance
• Nintendo Game Boy Color
• Nintendo GameCube
• Nintendo Super Nintendo
• Nintendo Wii
• PC Games
• Sega CD
• Sega Dreamcast
• Sega Game Gear
• Sega Genesis
• Sega Saturn
• Sony PlayStation
• Sony PlayStation  2
• Sony PlayStation  3
• Sony PSP
• Xbox
• Xbox 360  

These are the categories that are very valuable to resell.  Check out Half.com for current selling values?  The vintage game console resell market is very soft; the collectability is in the game cartridges.  I suggest that you have 2 of each vintage console models in your store for sale at a very low price.

Steve Mack

March 1, 2010 -  I have to add that a Nintendo game just sold this week for $41,300.00.  This is to illustrate the hidden values of games,  knowing when something crosses your counter can be a game changing event, keep your eyes peeled.  Read this article.

Getting a full return on your gold refining. Checks and Balance

I don’t know about you, but when I sent out my gold to the refiners, it never seemed right. With my suggestions you should earn an extra 5% of gross profit. In my 25 years as a pawnbroker, the number one focus on operations was having honesty and integrity within my ranks, including your vendors. You must create a log of the results from the refiners you utilize. You will see comparative results. It's that accounting, bean- counting stuff I learned. And let me tell you, those refiners have the same issues with employees stealing as we have, except the refiners loss is your loss. Their employees steal from the gold batch before it is refined. So it is very difficult for you to know where the slippage comes from. And who believes that refiners are 100% honest. And even if we are giving them the benefit of the doubt, how competent are they? So there are three factors in the refining process that you must rely on.

1. Refineries employees being honest
2. Refineries themselves being honest.
3. These companies are competent and accurate.

There is a very simple process to follow, and as I like to say, "You will only know, when you know". Here is my recommended scrapping process. Start out with 5 coffee cans.

1.   Can1 - 10k and below

2.   Can2 - 14k

3.   Can3 - 18k

4.   Can4 - 20k - 24k

5.   Can5 - misc gold items with stones. (Diamonds that can't be removed with a simple prong pry, it should be soaked.)

What is a soak? - From Can5 stone removal lot is placed in an individual chemical reactor. A technician will monitor each reaction as your gold, platinum or palladium and any remaining residue is dissolved leaving your stones clean and ready for sorting. It's best to accumulate a good size batch for this type of stone removal because they usually charge an additional $250.00 per batch. This can be negotiated.

As you are processing your defaulted loans, the items that you wish to scrap, put the items in a marked can separated by karat. Look at the stamp mark, no need to gold test. And for items without marks, either guess or test utilizing an analyzer or acid test.

Keep your envelopes so that you can tally the amount of weight and amount as an audit trail if needed. If you have other people doing this routine, I recommend adding the weights marked on each envelope and compare to what you actually sent out.

Whatever timing you prefer (to send out the material) is your call. Ready for the next step?

I first suggest that you select 2 independent refining companies. Then you take each can and split into equal parts. Take a plastic baggy and mark the bag with the karat and weight. You should have either 8 or 10 bags depending if you are sending out a soak. You will send out a batch (containing 10k, 14k, 18k, 20-24k, and soak if included) to each vendor. Write down the carat category and all of the weights of each bag and totals. Indicate in the instructions, " if there is a discrepancy” to contact you. Specifically, indicate that you want to be paid for silver, platinum, and palladium. Otherwise, they keep what you don't ask for? That took me years to figure out.

After you receive the check and specific results, you should have a better idea how different the results can be. Given the type of materials we accept in our trade, there can be a legitimate margin for error. My experience over the year’s showed consistent and similar results when I was dealing with top refiners. Request a new assay if the results don't make sense. There are not supposed to sell your lot until you approve the payment. Separate your scrap batches every time and use 2 vendors. Try new vendors every 6 months and don't get comfortable.

From Hoover and Strong - suggested this check list for optimization.

•Anything used in precious metal manufacturing should be turned in for refining with sweeps in a container. This includes store buffs, brushes, emery paper, etc.

•Include name, address and instructions.

•Include the weight of the scrap.

•State Assay Instructions (i.e. Assay for Silver, Gold, Platinum, and Palladium)

•Separate metals, not karats.

•Separating your scrap increases your bottom line by minimizing your refining charges.

•Separate magnetic from non-magnetic material.

•Treat it like the rest of your inventory; turn it at least twice a year.

•Know the basics of refining.

•Track the scrap in your shop.

•Promote the fact that you buy scrap.

•Send your scrap to a reputable refiner, not a middleman.

How to weigh gold

When I was in the business 5 years ago, gold was $350.00 - $390.00 per ounce. I am so pleased at the raise from the days when it was swinging around $250.00. All I can say about today's price is WOW; it's just hard to believe what that raw material is worth. And the way the economy is today, the price of gold is going to stay high for long while. This topic is magnified--what I am going to share with you today is 5 times more important than what we discovered in 2002.

The stones in a jewelry setting weigh something. A carat is a weight just like ounces. We shouldn't be adding in the stone weight when we are loaning or buying on an item. If we are estimating correctly, we should be evaluating the stones as well. If it is a diamond or a precious stone there is a higher level of expertise needed just for those stones. If it is a semi-precious, simulant, or imitation stone, the value of the gem is worth very little to zero; however, the weight of the stone needs to be subtracted from the weight of the item. Our experience dictated about 3 to 4 percent of miscalculated weight. That can add up at year end; especially taking into account the worth of gold today.

When we developed PRIMA we built a grid with the specific weights of each stone class and category. Size and type of stone weigh differently. As we entered a jewelry item into the system, the loan estimator subtracted the weight of the stones from the gold. Bravo will also have this function.

This can be done manually, but it is very time consuming. The weights of the stones can be found on the Internet.

You will find in my articles a common theme of hidden and small treasures. Little saving here and there, but come June 10th 2011 at the NPA come see Bravo, it amounts to real money savings. I appreciate your following my blog.

Good to Great - how to build TRUST & BRAND

I appreciate you reading this article. This article reveals one of the most important developments of my career. It is a long read and at times hard to follow so please take your time and if you have any questions please let me know.

This is an important discussion for all pawnbrokers, whether operating one store or more. Pricing your merchandise consistently is a major issue in today's retail business. It is a major issue in Pawnshops. Have you ever purchased an item from a retail store that was cheaper than the rest? This is a real problem in retail. Should it be a big deal in pawn? It is bigger than ever. It is an obvious in-your-face mistake when you pick up a brand new Playstation3 at $299.99 and the exact same new item is $279.99 somewhere else. Which one would you purchase? Why is it mispriced? Is there something wrong with the cheaper item? There is no difference with this product, rather a pricing mistake. This is a major issue for retailers.

Product Quality Differentiation. An item quality from As-Is to Like New translates to an item from worth nothing, to something that is worth a lot. Why don't pawnbrokers think this is so important? For me it was the essence of pawn brokering. What something was worth and what could I get for it. It was seeing the value in something that no one else knew. Could I be better a better Pawnbroker? This was the challenge and this pointed us in a direction that surfaced a huge opportunity—both on the resale and on the lending side of business. We sell used stuff. It is second-hand. Second-hand products demand product quality differentiation. I am going share with you something that is so obvious and simple, it is anything but simple to fix. If you have a Honda 2005 Accord with 50k miles and you were comparing it to a Honda 2005 Accord with 100k miles and all other considerations are equal, wouldn't one be worth more than the other? It's like that Skil77 that has 6 months of hard ownership versus one that has been gently used on weekends? We all see the difference. How much difference? Are we conscious when loaning on the item? Are we conscious about pricing the item for resale? I know that every day you come across merchandise that has obvious quality differences. How do you handle this day in and day out? Do you remember what you priced that Skil77 three weeks ago compared to the one that you are pricing today? Does your employee know that you priced this last week? Does your employee know you have 2 of the same items on the floor? This is where you are getting beat by average shoppers. You are losing profit if you are not pricing your merchandise by the quality of the product. Items that are ‘like new’ quality should be priced higher than an item in fair condition. Do you do this consistently everyday? Do your employees know what you are thinking?

This took us a long time to uncover the symptom and size of this problem. This revelation came to me on our 6th store; we were having a grand opening that evening. I was listening to a customer complaining to a sales associate that a Canon camera he saw at one of our other stores was cheaper. We always heard that about our competitors, but to hear this about one of our own stores had a new twist. How can you solve this? You can't ignore the common tendency to price items based on what we paid for it. Shouldn't we be pricing merchandise for what it is worth? What if we overpaid for an item? Would you sell a gold item you purchased last year at last year’s price? It’s worth more today... so sell the item for what it is worth!!!

I could not stand by to hear this conversation go on so I asked the customer what price the other camera was? He said it was 50 bucks less. Our item was priced at $199.99 on sale for $150.00. I told him we would match the price at $99.00. We generally priced our merchandise to negotiate up to 30%. This was a common business practice and customer policy for us to match price with our competitors.

IT’S NOT WHAT YOU PAY FOR AN ITEM. I thought the camera was properly priced though. After the customer who purchased the camera had left, I called the other store and asked about their camera and what was going on with pricing the camera so cheap. They described the camera as being complete with the case, functional, and clean. Sounded like the same camera we just sold. Then he added, "We only paid 30 bucks for it so I marked $99.00." This was a can of worms that needed to be sorted out. How do you fix this problem permanently? We would walk through our stores to make sure that our pricing was correct and consistent. The only consistency we saw was mispriced items. New stuff priced less than well-used items. We knew shoppers would cherry pick the better merchandise and guess what stuff ends up on the shelf? In the process you end up with a bunch of worthless merchandise that needs to be cleared out and heavily discounted.

We hired a retired Target Vice President who was the best that Superpawn employed—Jim Kelly. Not the quarterback as he would say. A fantastic agent of consistency in store appearance. "If you are building a brand, you have to be consistent." One of his initiatives was "zone defense" and we assigned our associates to be in charge of an area in the store. We became conscious of the importance. We trained, we trained, and we trained. We got a lot better.

INVENTORY ITEM TURNOVER IS IMPORTANT WHEN PRICING AN ITEM. We also found during this process that new merchandise sells a lot faster than merchandise of lesser quality. Inventory turnover. It wasn't just about margin. If you sell a Skil77 four times a year at a 50% margin you have turned a 200% profit margin. If you sell the same item at 40% margin eight times you make 320% margin. What we also discovered when we lent more on the items that were better quality, we ended up having more money on the street in our loan portfolio and our default rate did not go up. More money lent on the better items had a lower default rate than lending a lot less on lower quality used goods. It was because you weren't actually lending more on the item, it was because the item was worth more to the borrower. Wow! I highly recommend this strategy.

We became infatuated with this theory. We believed there was a lot more to squeeze out of this challenge. We saw improved margins, increased turnover, and major increase in loan portfolio balances. Our back rooms were packed with loans and our merchandise that was properly priced was blowing out the front door.

One of the smartest persons that I have ever met, Tom Haas, led us at Superpawn. Tom is a retail operator and has become a great pawnbroker. Tom, as our President, brought our organization competencies up two notches. Tom had just left working for Summer Redstone of Time Warner’s division Nickelodeon. Tom had, from start to finish, opened all of the Nickelodeon retail branches for Time Warner. We drug Tom from Austin, Texas to Las Vegas to help take us to the next level. This also enabled me to focus and finish our third iteration and new operating system PRIMA.

I believed that a systems approach in determining the "absolute" quality of merchandise could be achieved. A standard could be created for second-hand merchandise. We found that there were 5 significant levels of quality difference in second-hand merchandise. This did not include re-furbished merchandise, which is a whole topic in itself, and something we rarely handled. How were we going to teach and train ourselves, and staff to loan and price, on 5 levels of quality for 120 categories or 135,000 items SKU's.

We thought we nailed it. We added condition rating to our systems that automatically discounted by percentages for pricing and lending, “AS-IS”, “FAIR”, “GOOD”, “VERY GOOD”, and “LIKE NEW." Our implementation within the system included different discounts for quality within all 120 categories. So each category had different percentage discounts for each quality rating. Take for example firearms. Firearms had a much softer discount for quality compared to cameras. This created the next attempt in a standard rating system for pre-owned merchandise. There was more to do!

WE NEEDED TO RETHINK THE WAY WE LOOKED AT MERCHANDISE. We began an extensive training program to teach our Pawnbrokers what each quality rating meant. Overall the quality ratings AS-IS and LIKE NEW were the easiest. It was the middle three ratings that we could not get our arms around. It was the standard quality ratings for 120 categories of merchandise. From leather coats to sporting goods to electronics to tools to antiques to… well what ever might come across our counter, we were planning a wide variety of discussion. Over the next year, we completely changed the way we looked at merchandise. All of us knew intuitively that this was logical and correct, but getting there was becoming a bigger challenge than we thought.

During this period our training committee, who consisted of all former pawnbrokers with a combined experience of 75 years, was having a tough time deciding how to articulate the basics of pawn brokering. "It’s our art." How do you determine the value of an item? Everyone that you talk to that is not a pawnbroker asks this question! This got deep. I sat in on many of these meetings and the opinions of these seasoned veterans were diverse, but all correct. We studied this for 4 months and came up with a methodology and a program. When we researched the practices of First Cash, Cash America, and EZ Pawn, they all relied on each store’s manager’s opinion on how to price and lend. How could this be? These were brand establishments. I traveled to Texas, Florida, Atlanta, and the West coast and searched pawnshops to find the answer.

PRICING INTEGRITY CREATES TRUST WITH YOUR CUSTOMERS. Simply put—each brand had no consistency. In some instances, even the same company, within blocks of each location, would have slightly different signs. And inside the merchandise and pricing were different. It made no sense at all. How could the pricing of merchandise not be important when you are selling to the public? There was no pricing integrity. Was the reason why people shopped in pawnshops to find mistakes of unknown value? This was interesting. When I was behind the counter and someone brought in something I was not familiar with, I offered a conservative amount. The customer knew what it was worth. It looked like it had value and I low-balled it. When I had to sell it, I always made a profit, and in many cases, more than I imagined.

This is important. Pricing pre-owned merchandise has nothing to do with what you pay for an item. What you pay for an item has nothing to do with how you price your merchandise. Pricing is a function of what it is worth and what you can get for it. You should price merchandise for what it is worth plus your negotiating posture, and then you negotiate with that customer what you can get for it. This is the reality of the business. Credibility in the marketplace is built with consistent well priced merchandise.

This goes against the grain of most pawnbrokers. Most pawnbrokers believe that if you pay 10 bucks, you have to sell it for $30.00 and mark it $50.00. No matter what you price the merchandise for, you are most likely going to negotiate to a certain price. If you price based on what you paid for an item, and if you made a great buy, why lose your advantage? If you believe in a cost based margin in pricing and you over paid, then you would have to price up the item. Why is merchandise that you paid more for, priced higher? It’s simply a purchasing mistake. When you see a overpriced tag on one item, you lose integrity on all the items in your store. Customers have no tolerance with this issue. Pricing integrity is the key to customer confidence. When you go to the grocery store and the Best Foods mayonnaise is priced to high you immediately wonder about the other items in your basket. What message are you sending to your customers that shop at your store? If you make a good buy on an item, price the item for what it is worth and make the extra margin. Get paid for your good purchasing skill. But if you pay too much, price the item right, then sell the item for a smaller profit. Pricing merchandise in your store this way develops a theme of integrity and credibility. This is how you build reputation and brand.

HANG IN THERE…

CUSTOMERS THAT TRUST YOU WILL LAST LONGER So, I hope we can agree that there is an opportunity. Price your merchandise for what it is worth. Worth is the item value plus your negotiating posture. We have to negotiate, I believe this, and if you don't negotiate, then just price it for what it is worth. If it is priced correctly it will sell. An item that is priced correctly just needs a customer that knows its value. If your store is known to negotiate, it is really hard to change this purchasing proclivity.

During the quest to learn the appropriate method of a quality rating system we found several other pockets of opportunity. We wanted our customers to see items that had value at every level of the quality rating. We even found a price point for items that were broken. If you know the value of an item when it is broken, then you really have found the correct value system. Not everything has a value in AS-IS condition but there is a huge market for customers that like to fix things. With everything that we have discussed up to this point our company never completely figured out the full solution to this until we turned our selling effort on EBay and our Website. Yes, I am happy to say that after reading this long article it has a happy ending, we did figure it out. Here is what we learned.

Take for example the digital camera. Online customers were very picky. Our online sales came from, EBay and our website. It seemed that customers who purchased from the store were much easier. It is a lot easier and many times more profitable to sell from your store. If you did not need a store-front for the pawn operations this might be a different story. But yes, anytime that you can sell an item in your store, do it! There is place and a time to sell an item online.

These online customers needed to know everything. These customers asked for more information than we ever experienced selling in the store. I believe that this was a confluence of product information at their fingertips through the web. Customers have become savvier, but online retailers have also found that they needed to describe the merchandise to a tee. Customers that did not get what they expected would send back their item. Most customers that purchase from a pawnshop try out the item before the purchase. This testing procedure keeps the rate of return low. Getting back merchandise from an online sale is super expensive. It is worse than a customer bringing something back to the store. Describing merchandise for the web made a huge difference in selling stuff successfully.

Another challenge—how do you effectively and consistently describe merchandise on the web? It’s that brand thing, consistency. You have to trust me, it is really important. The answer to this challenge is remarkable. The answer lied in the hands of my great grandfather who embarked in this crazy business 125 years ago. It’s in the Pawn.

This can only be done on a computer data input screen, but you are all doing it that now. My great grandfather would do this by hand when he used to fill out the Pawn ticket.

Item - Camera -- Manufacture - Canon -- Model -- Powershot S90 --- Accessories --- case. This was the basic information that we describe in a pawn transaction. It is what we fill out on computer terminal. Why can't we just re-use this effort and put this into the item description when we sell it online? The system has this data. Can we move it systematically into a different business effort? We essentially took the pawn transaction and emulated the posting effort that is required to sell online. All of those years that the governments made us fill out those tickets were going to pay off in a different way. We created value oriented metadata.

Now please don't go, this won't get technical. Metadata are canned questions that add depth to the description of a basic product. Let’s stick with the example above: Item, Manufacture, and Model. The metadata would be: Original box? Case? Memory Stick? Megapixel? Warranty Card? Flash? These questions could easily be answered yes or no or a pick-list. All of these elements add up to something. Each question has a weighted value. We knew that if we had all of these listed and included on the web page, whether on EBay or on our website, that we would get more for this item. But, if we didn't have one of these elements listed, customers would pay less. Some elements of the product affected the value more than others. Wow! Condition rating was reborn. Yes, it just didn't matter to customers whether the item had wear on the corner of the camera; it had more to do if it was complete. In fact 80% of the value had to do with the complete nature of the product rather than the wear and tear. This was huge. This tool gave our pawnbrokers the greatest advantage. Our competitors had no chance. It became a simple reminder just to make sure that the camera had memory. Sometime you would find a memory card worth 40 bucks. The possibilities were astounding.

We created metaquestions for 120 categories. Our approach was to ask the best pawnbrokers to build a list of questions for each category of their expertise. If you knew guitars, we would ask the most precise questions. Every effort in describing an item had value. In some cases, if the item had a missing component then it could be a deduction. It would be like a cordless drill not having the battery and charger. Every question created and then asked during a pawn or a buy, had a weighed value. It could also be thought of as building an item value. Start with the item, then the manufacture, then model, and on and on. We nailed the quality rating and built best practices into the way we looked at merchandise. Any pawnbroker could challenge and change the weighting and we were able to change the device within the system instantly.

This systematic approach is intriguing but there is huge lift into your business without the assistance of system. Follow the earlier steps I have shared.

I believe the best pawnbrokers are people that know how to talk to people. More time spent with a customer and more time spent with employees’ results in better store performance. This approach allowed our people to do what they do best. This approach left the heavy lifting of merchandise evaluation to the system. There is so much to ensure a loan is made properly. Many people would challenge me by saying you can let a system evaluate. I agree. The best framers aren't the ones that use a hammer today. They use a pneumatic nail gun. It's the framer that checks angle and measurement. A good pawnbroker is the one who tests the merchandise, asks the right questions, describes the merchandise, and has time to ask the customer if they have anything else they can pawn or sell. The loan manager’s oversight is heavily reduced during this transactional period. He/she doesn't have to check, because the system asks the loan associate every time.

When you have made a loan or buy, answering the metadata question correctly, the item is automatically ready for pricing. The item was priced correctly determined by its quality. Two tasks completed in one transaction. In fact this item entry screen enabled 7 major tasks and reduced our administrative tasks by 30%.

We added other fancy features to the category engine such as replicated depreciation. If the item was in Pawn and renewed for 2 years and then defaulted, its price went down according to the depreciation percentage rate assigned to that item’s category. Computers are a good example of where this comes into play. When we evaluated and loaned on the item in 2009 after 4 renewals the customer defaults and you end up have to sell the item. If this was a computer, the price would have to be cut dramatically. The automated depreciation took this into account and re-priced the item to today’s value. We were especially sensitive to this because it needed to be priced to sell quickly. If we had a price correlation to what we paid for it, the item would sit and over time lose more value.

GOOD PAWNBROKERS TURN INTO GREAT PAWNBROKERS.  We all know what makes a good pawnbroker. They comprise of about 20 attributes. If each time they looked at an item and they had information that included current turnover rate, average sales price, and profit by quality, default rate, and how many in current inventory, do you think they would make better decisions? They do, they did, and where they went from here it only got better.

If you become interested in BRAVO this system will have all of these features. You won't be the guinea pig, PRIMA has all these features and it has been tested, vetted, and proven.

This was a long one with a lot of useful information. I would love your feedback. What are you thinking? If I could boil it down to fiver major take home messages they would be...

1. Keep your store looking its best! Zone defense
2. Consistent price check of your merchandise. You will find as many items that prices need to be raised than lowered.
3. Quality rating starts at the loan counter. Pay premium for complete items and be more conservative for lower quality items. Lower quality merchandise takes longer to to sell and time is money.
4. Add inventory turnover to your pawn brokering decision process. It just not margin.
5. Consistency is a long term objective but this is what drives excellence. Build a business for the long term.

Pawnbrokers hit pay dirt - Gold is good !

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.

How to weigh your gold ! You could be losing money

When I was in the business 5 years ago, gold was $350.00 - $390.00 per ounce. I am so pleased at the raise from the days when it was swinging around $250.00. All I can say about today's price is WOW; it's just hard to believe what that raw material is worth. And the way the economy is today, the price of gold is going to stay high for long while. I have something very important to share with you. We discovered this in 2002; and today it is more important than ever.

The stones in a jewelry setting weigh something. A carat is a weight just like ounces. We shouldn't be adding in the stone weight when we are loaning or buying on an item. If we are estimating correctly, we should be evaluating the stones as well. If it is a diamond or a precious stone, there is a higher level of expertise needed just for those stones. If it is a semi-precious, simulant, or imitation stone, the value of the gem is worth very little to zero. Either way, the weight of the stone needs to be subtracted from the weight of the item. Our experience dictated about 3 to 4 percent of miscalculated weight. That can add up at years end; especially taking into account the worth of gold today.

When we developed PRIMA we built a grid with the specific weights of each stone class and category. Size and type of stone weigh differently. As we entered a jewelry item into the system, the loan estimator subtracted the weight of the stones from the gold. Bravo will also have this function.

This can be done manually, but it is very time consuming. The weights of the stones can be found on the Internet.

You will find in my articles a common theme of hidden and small treasures. Little saving here and there, but when the end of the year approaches, real money is saved. I appreciate your following my blog.

Back room space management. One easy decision - saves big $$

If I could offer one way to save thousands of dollars per year, I would suggest space planning. One of the costliest, most neglected areas is the back room for loan storage. We often think that since we are making up to 30% per month in interest on each loan, storage for that item is not of concern. We ask ourselves: why spend money or effort for storage?

I often thought it was a shame that we are required to pay the same price for storage than we pay for the retail floor space. The reasons vary from local regulations that require on site storage to the basic convenience of being able to deliver a timely redemption. Most stores need an ample size store to accommodate loan storage, which means that you have to sacrifice your choice of location to a tier 2 or 3 site. With retail property being way higher than traditional warehouse space, finding a balanced property is very challenging. Most pawnshops are not found in premium locations. Fully planning your space supports a smaller footprint, maximizes your spend for rent, and in many cases can reduce the number of employees required to operate. Today with real-estate prices hitting the bottom, many of you are contemplating moving to better locations (or at least re-negotiating your leases). My advice, RETHINK YOUR BACK ROOMS!!!

One of my best friends, Greg Westover, is one of the leading logistic managers in the country. He came to work with us at Superpawn and was drawn to our team because of our systematic approach to "just in time” (JIT) inventory management. We had introduced this methodology in 1996. The right merchandise. In the right store. At the right time.

The idea came from both my accounting background and a tight inventory management practice. I did not want jewelry back stock in the stores. I felt it was costly to have inventory sitting in the back room, plus you never know when an item might sell in another location. When we sold a jewelry item in a store it was automatically re-ordered through our system. A bar coded item tag was left in the jewelry slot. A very similar piece of jewelry would be sent to the store from a central jewelry refurbishment facility, bar coded, and indicating where the previous jewelry item case location. Both tags would be scanned and processed at the store notifying the system that a complete item transfer had taken place. All of the accounting was automated. Greg freaked out when he saw this. For years he had been in managing inventories for Fortune 500 companies, but when he saw this at SuperPawn, he wanted to help with other logistic opportunities.

THE FIX Greg brought in Gary Fisher and Rob Hutson. Planning out a back room is like designing a home, but done well, this planning stage will reduce your back room requirement by 25 - 40%. These are important savings that you can take advantage in the planning stage of a new store, and is worth the analysis in an existing store. So if your back room is full, or you want to create some space for other uses, seek out a logistic expert. If you want to call up Rob Hutson, it will be a very productive introduction. You will find that specialized rack shelving WILL be a part of your solution. You can find used shelving all over the internet.

So you do the math. 250 - 1000 square feet x $1.00 - $1.50 per month x 60 months (average lease term). The savings on one store over a 5 year period is $12,500 - $75,000.00. Other cost savings can be found in careful layout design and can even make your store more efficient, even to the extent that you can save man hours. Think about where your everyday effort is spent and plan your store with intent.

How to borrow money from a bank?

Borrowing from a bank today is very difficult. Even before this financial collapse pawnbrokers have always had a rough time borrowing from a financial institution. Most of you have had to borrow from family and friends. Some of you have found money from hard money-lenders, although helpful, it is usually a pretty expensive cost compared to what banks charge. Do banks want to lend you money today? YES THEY DO!!!

There are two reasons why pawnbrokers can't borrow. The first reason: the borrower doesn't know how to present a proper proposal to the banker. The second reason: the bank doesn't understand the pawn business. At some banks, their policies prohibit lending to pawnbrokers. The typical time people give up is when the borrower is required to do both tasks. We expect the bank to know. Yes, you have to educate the banker. This is a very important because you have to find someone that works for a bank that wants to listen and learn. Make sure that you invest in someone that believes in you and likes you, because this will be huge time investment for both parties. I promise you though; it will be a game changing accomplishment if you open the door to regular banking. Today's cost of capital should not exceed 2% over prime rate. Your cost of capital can eat up all of your profits at the end of the year. My traditional banking relationship saved me millions of dollars and allowed me to expand my business beyond what I conceived was available for a pawnbroker. Bottom line: banks like businesses that make money.

Most banks like to see the same information. The information is a timely financial statement. First ask your banker what format he or she prefers. You provide exactly what they request, but also provide detail and substantiation behind the statement. Three statements are required: (1) Income, (2) Balance, and (3) Cash Flow statements. You need to use a credible accounting firm. Your banker can give you list of names. Yes it will cost you more for your statements, but it will save you the big bucks later and don't forget to negotiate with your accountants. Banks handicap the rate they charge based on the credibility of your financial statement.

Do you understand what the true meaning behind a financial statement is? 90% of business owners don't. This is the single reason that small businesses can't borrow money. Spend time with your accountant and ask him what these statements mean in detail. Be relentless with questions. Pick up for small business for dummies book.  Here are some other resource articles.

• How to read a Income statement.
• How to read a Balance sheet.
• How to read a cash flow statement. The most important!

For most business people, reading financial statements isn’t something that comes naturally. But when you grasp the meaning of the numbers, you will really understand your business. If you become proficient, you will really understand how GREAT the pawn brokering business really is. I know that you know the pawn business is a good business. But for the guys that only know finance and traditional banking, when they are presented information in their language and the way they want to see it, the light bulb will go on and you will have an advocate that can really change your opportunity. This will translate into them knowing how good the pawn business is.

One last side note. When reviewing your statements: if you see results that don't look good/correct, ask the accountant the how's and why's. You will find that your business may be turning the wrong way. Statements are incredibly revealing. Use them, appreciate them, and gain from them.

I have banked with several institutions. My financial reporting evolved over time and I made modifications as the bank suggested. I eventually went with fully audited financial statements. As your credit limit rises, the bank will strap on further requirements. Banks don’t care about you just because you pay and are a long-time customer. In fact, it’s bad business. Banks make loans because they want their money back. If something changes and their confidence dissipates, expect the call.

As long as I was borrowing at a competitive rate, (which was as low as .30 percent over LIBOR rate), I was a happy guy. Remember that when banks get stuffy or demanding, it is usually perpetuated from outside forces. This is very prevalent today. Go with the flow. Solid reporting is the key to running your business well. Help your banker make his case.

If you are not showing a profit on your statements, don’t go a banker and ask to borrow money (even if you are actually making a lot of money). Why? It’s illegal. Even more? It sends a message of dishonesty. Which means? A waste of time for everyone involved.

This advice will get you 80% to the finish line. BRAVO has proprietary reports that will get the rest of the way. We have included all of our reporting tools that we used, which will enable you to provide bankers with instant information, which will add an extra layer of due diligence that the banking community appreciates. Bankers show their appreciation by charging you less. They will also put you in the driver’s seat when you need to borrow.

So, go get started! Set up your banking relationship and get the same benefit that all other businesses have access to. You have the information—go grow your business.

Competition is around the corner - get ready !

Business is business. It can be… well let’s just say, competitive. For those of you that compete in markets where the three big corporate pawn operators are located, it is a different playing field. They behave in ways that we don't understand, and many times, create opportunity because they appear to get in their own way. They have to operate differently because they are big, but don't ever let your guard down. They are smart, deep pockets, which have resources. Independent operators are there target. They want your business. We want their business!

Our team is extremely competitive and since we are developing BRAVO for you, we are aiming for the bull’s eye. We view our product’s success on not just being better than other software providers, but providing a product that propels your store opportunity to levels you have never experienced. We want you to win.

Our winning Pawnbroker philosophy business practices are based on 3 principles.

1. We must deliver great customer service!
2. We must lend more money than anyone else!
3. We must sell merchandise quickly and profitably!

Some of you may be thinking, “Yeah duh, I already know this,” but I want to reinforce each of these statements and discuss how to approach each concept differently. What is both fun and challenging is that there are multitudes of ways to be successful in pawn brokering. Your ideas and success should not be discounted. Two heads are bigger than one, so let’s just think together.

• We must deliver great customer service!

The simplest philosophy that I believe is, "Let the customer win." Say yes to the customer. Never say no.

When you first start out in business this is easier to deliver. Later on, you get accustomed and have a few bad experiences and this becomes a way of doing business. Throw it all out the door and be nice. We are pawnbrokers... We are in business to help people.... Don't forget this statement because it is the essence of what we do every day. Outsiders chide us because we make a profit. Great surgeons save people and get paid. The same is true for us; we are fairly paid as well. But we must be reminded that, like doctors, we have a social responsibility. We are the bankers of our customers—the public. Treat this and teach this to your employees. A privileged business comes with a responsibility. Be patient, be a good listener, and offer your customer choices. Outsiders don't understand the significance that we provide for our community, but we are an important layer that supports the community. I think this is tantamount to our existence as an industry.

This was a philosophy that really worked for me. It was also easy to communicate to my team. It was easy to get behind such a reasonable philosophy and it never got stale. Over the years, we had customer evangelists within our organization that insured us that, as we became successful and grew, we never ditched this way of thinking. Ultimately we delivered great customer service. Who could argue with us!

• We must lend more money than anyone else!

This is the double edge sword, which has to do with the legal statutory interest rates that you are able to charge. Let’s get back to philosophy. I believe that when a customer needs money, no matter how loyal of customer they may be, when they need money for a doctor let’s say, they will go to your competitor. Don't give them the chance to consider this. We need to figure out how to rationalize; we need to figure out how to give more.

Wal-Mart sells for less. They sell for less because they are smart and have figured out a way to sell for less. And they haven’t stopped. They still continue to find ways to deliver merchandise to its customers for less, every day. We need to figure out how to lend more everyday.

When I heard that a competitor was lending more, my first reaction was, “let that dumb dumb lend more,” followed by, “I am doing just fine.” Well, when your customers are telling you this on their way out the door, who is winning? I should have been thinking, “hey dumb dumb, what did my competitor just figure out.” Have you ever heard the saying "arrogance is bliss?" Let’s not let our arrogance let the competition win. So… how do we lend more?

Sell your merchandise for more. If you can figure out how to get more, then you should figure out how to lend more? We used to sell our jewelry for more than any pawnshop in the U.S. We polished to new condition and priced to sell. We trained our sales people to be knowledgeable in selling jewelry. It was 80% of our loan portfolio and became our single most important retail category. It was hard, it was extremely profitable, and it enabled us to lend more on jewelry. Today lending on jewelry is silly easy. Gold is better than cash. If someone gave you a $100.00 bill, what would you lend on it? Gold is worth more today than our U.S. currency. Lend more.

Lending is a function of how good of a retailer you are. If you can figure out a method to increase your ability in selling something for the most, you have found your niche. Selling for more means that you can lend more! You win two ways. First you will lend more money thus increasing your loan portfolio earning more interest. Pawnbrokers who know how to say yes at the loan counter win more customers. By winning business you end up with more inventories and because you know how to sell, this effort converts to selling profit. Second, expand your effort in selling more categories. When it blows off the shelf, you will need more merchandise. Think like a retailer, but obviously your supply of inventory come from customers on the street. How do you get more stuff? The answer is, pay more and let the word get to the street! This really enhances the store opportunity and creates the kind of buzz that makes this business so much fun.

In today's gold market and the economy, jewelry is not what it used to be. If you can't afford to carry inventory, selling into the scrap market is the way to go. I will tell you that putting money into your loan balance is the very best place for your cash, but the second best place for your money, is inventory. Jewelry is a major category to invest. So showcase your sellable merchandise and be selective. This creates a strong image that conveys the message: my store can offer huge savings to the public. Show your price comparisons. More jewelry in your case brings more jewelry to your loan business. The public likes to pawn items that they can see within the store. Your margins in Jewelry retail should be 30 - 40% more than scrap. If you can turn your showcase inventory twice a year, you are doing fantastic. One last thought on Jewelry: Merchandise, display and polish your jewelry like a retailer. All you need to bring your jewelry to life is a polisher, ultrasonic cleaner, and steamer. You can purchase really nice used jewelry displays from the local jeweler in town. They would be delighted to off last year’s display for some quick cash. If not try EBay.

I will have a lot more on retailing throughout my blog, stayed tuned.

Lending more to good customers. It is a wise choice. Just based on the track record of your customers, I suggest that when they redeem an item; promise them more money on their next loan. I referred to interest rates in my opening comment. In states that charge more than 12% per month on loans, there is a tipping point. The holding period matters as well. 30, 60, 90, or more term limits, can create a scenario that in the end of the term, costs the customer more than the item is worth. Be careful. You don't want to turn a good customer into someone that can't pick up his or her item. You will end up with the merchandise and eventually lose the customer. This equates into a huge loss. Spend time listening to the customer and explain the charges. In some cases, you are better off letting the customer sell the item. This is a win, win. The customer will not have a defaulted list of items in their record, and you won’t have to hold the item in loan. Customers that have no intention of picking up their items in loan are a huge expense to pawnbrokers.

If you charge lower interest rates, take off the brakes and lend to the default rate. What I mean is, if you have a customer or a category that has a low default rate then why not lend the max. If you have a 0% default then there is no risk. Test the results for each rate of default percentage and see what I mean. Do the math!

Quick example: conservative assumptions.

• 100k loan portfolio at 10% per month assuming 0% default - 100 x 120% = 120k
• Assumption - increase the same loans by 10% and increase default rate by 2%.
• 110k loan portfolio at 10% per month assuming 2% default - 102 x 120% = 122.4k + (8k loans defaulted x 40% margin) = 125.6k. If your borrowing cost for the extra 10k is 10%, then you made an extra $4,600.00 on the same loans.

Cool??? Cool!!! The numbers can be different in reality, but the results are positive and lending more keeps customers coming back to borrow.

• We must quickly and profitably sell merchandise!

I have touched on selling as a way to lend more, but the pawn brokering business is a ying and yang thing. We need to be a great lender and a great re-seller of loan collateral. As we think of loaning money to the public, we are different than banking because we have to be good at selling the stuff that we lend on. Banks focus on lending money to people that pay back with minimal risk or no defaults. If a bank charges 6% and they right off 2% to bad loans and the cost of money is 1%, they are good with a 3% or 50% margin. Yes, if they charge 6 and their cost is 3, the gross margin is 3 or 50% margin. Banking is a great business when making million dollar loans but since our average loan is about $100.00, we need our fat margins to make it work. Banks write off loans, they don't care. It’s all a part of their plan. Our plan must be different.

There are categories that we lend on with very little to no default; but in most cases our default rates are 8 - 30% (sometimes more). If our rates were as low as banks, then everyone would be in our business. The reason why people stay out of your business is because it is hard. The burdensome regulatory requirements, that cost us on average $6.00 per transaction, are a huge responsibility as well. Selling used stuff is really hard. But since we do it every day, over time it becomes a part of the business. Comparative to regular retail though, this stuff is much harder to handle. So let’s clap and pat ourselves on a job well done.

Everything that we can do to sell stuff for more and faster translates to larger and more productive loan portfolios. The number one reason why pawnbrokers will lend less on something is because it is hard to sell. If it is hard to sell, we offer less. If we have never sold it before, we lend less. If we had a bad experience with this item yesterday, we lend less today. On the other hand if we just sold the item yesterday and it sold in 3 days, we lend more. We do this every day, but it’s hard to really think this through for every event. Selling fast in our business is not just because it is priced low. Sometimes it is because, on that day, someone was looking for it and you had it. Luck! I like the idea of getting more and selling it faster at the same time. I will tell you how and if you want to know why, just ask in the comments below.

Generally speaking, in order to sell for more and faster, you must merchandise your inventory. It's just like ordinary retailing. It has got to look good on the shelf. Use your imagination. Move your merchandise around every 60 days. Change generates business. Read my rap cords article.

Shrink-wrap. I love shrink-wrap. I saw a Home Depot associate shrink wrap an article one day and I asked why? The associate told me it was because it made the item look like new again. So we started! And over time we found that if a small item was in a show case, behind the counter with accessories included, it was home run. It was a real time saver, because if you kept the accessories behind the counter or somewhere else other than with the item, it was hard to find them when you were in the heat of a sale. We had mountains of cords left over before the shrink-wrap campaign. And guess what? You get more for the item when you have all of the accessories.

Your store needs to look good. Paint is good start. Also, a good smell is always helpful. It’s fun during Christmas to have spice in the air; and it turns on the subconscious spending machine. Used merchandise has an odor, it just does. Over the years it gets really really gross. So… spray each day or go to a supply store and get your favorite smell-good release can. It really works.

If you want to take it up another notch, then an in store image campaign is very important. Again, let’s start with a Christmas campaign and let’s get jolly. Decorate your store with a tree, decorations, and get into the spirit. Take your time and don't get tacky. Watch your customers respond.

A general in store campaign can be pictures of merchandise in a frame. Also include pictures of people shopping and people traveling. People that look like your customers having a good time. I believe that customers come into our stores for a need. The best thing you can do for them is put them into a scene that is positive. This is easy to do with 6 - 15 images about 28" x 34" framed. It’s has a big impact for very little. This really sets off the store.

Guarantee your merchandise. Test the merchandise before they leave and give them a 30-day guarantee. Selling stuff as-is, sales are final, sends a bad message and a cautionary flag that simply discounts your merchandise. If you test the merchandise while taking in the item you will have a 98% perfect product to sell. Guarantee your stuff and believe in what you sell. Remember: if an item comes back, do whatever is right in the customers eyes. Make them happy even if it costs you a few bucks. You win. Clean up your store - sell for more - sell your stuff faster.

• Dialogue

Competition is going to get tougher. In California, specifically the Beverly Hills district, the numbers of pawnshops went from 4 stores to 13 stores in one year. This is happening in many cities. Cash4gold business has drawn awareness to gold scrapping’s lucrative nature, and this business interest is drafting into the pawn business. I said earlier that pawn brokering is hard, but an all-gold pawnshop liquidation model is a no brainer, which is why we are seeing so much interest.

I bring this up because many of you are drifting to the scrap business model and your ability to retail is what may be your lifeline in the future. I believe that gold will go down in the future and these new entrants will fold up, but the survivors will be the ones who know how to sell. I also think that if you focus on Jewelry sales, you could capture the local wedding business (because of the number of local jewelry stores that have shut down). When the economy hits Main Street, gold will go down and there will be a demand for Jewelry. Get ready and continue to develop your selling skills.

BRAVO will assist in delivering information and choices so that you have the edge in your lending and sales business. Our eCommerce platform will extend your inventory and create options for you to sell more vibrantly and enable your customers to your store 24/7. BRAVO will offer online services for your loan customers so they can renew and redeem their items. Stay tuned to our blog so that you can become familiar with the future features that you will soon be able to offer your customers through BRAVO.

Thanks for reading and remember, as a pawn broker:

1. You must deliver great customer service!
2. You must lend more money than anyone else!
3. You must sell merchandise quickly and profitably!

Stolen Property - Perception - We must become proactive !

The last 2 years, our regulatory risk has reached an all time high. Many of you have engaged actively with our Federal Congressional Representatives. This translates into one-on-one discussions and the development of long-term educational programs. Many of you should be aware that our Industry is at risk if the Federal Government passes laws. This is nothing new. Our business is actively regulated on local levels, but the Federal Government is raising its head. So what can we do? We need to perform at a higher level as an Industry. We know that our business is a necessity to the public. We need to shift the perception of our services from a burden on the public to a supportive participant. We cannot remain viewed as a pariah taking advantage of the unfortunate. We know that this is not true, but in many circles this is a perceptual fact.

I mentioned in my article about store appearance and the simple things we can do. Our stores need to become more main-stream. We can't compare ourselves to other pawnshops. We must compete with the best retailers. We need to look at mature successful businesses as the model to emulate. We are not Nordstrom or Neiman Marcus, but we can look at Wal-Mart or Target. I prefer Target's merchandising. I look to GameStop to get merchandising tips for video games business. Jewelry stores are a great place to learn how to display. When was the last time you looked at your pawnshop competitors and retailers?

We spent a lot of time trying to figure out what advertising worked. Our focus group study revealed that 80% of our business was drive-by. It was our storefront that left an impression. Clean up your storefront and become a part of the business community. Your customers prefer a higher level of experience.

My personal goal with Bravo and Maxpawn.com is to create an Industry solution from perception as well. We have seen software vendors APS and LEADS create a portal for law enforcement integration. This has been a public relations boost, but there are some vendors introducing legislation with fee incentives. In Phoenix the pawn transaction charges are as high as $3.00. This is an attractive method for Municipalities and State legislatures to increase revenues. Read about Flagstaff Arizona.

Bravo will offer a law enforcement portal for FREE. Along with effortless connectivity to law enforcement agencies in all 50 states, Bravo will automatically download your store’s data to your required agencies automatically. As a subscriber to Bravo, your store becomes a proactive participant in the pursuit in fighting crime. But it works both ways? Bravo will import lists of stolen items to advance warning of unwanted property. The community of Bravo participants will also flag undesirable customers. Now we can actively communicate to the pubic about our advanced effort of deterring individuals from pawning in our stores.

Steve Mack