In slow times, pawn shops grow

June 26, 2011 at 12:00a.m.

Star Tribune (Minneapolis)

MINNEAPOLIS

It’s a hot, windy Tuesday afternoon and the small Pawn America parking lot in Burnsville is nearly full.

Inside, shoppers scour the aisles for jewelry, electronics, golf clubs and assorted power tools. Tuesday also is the day for the weekly DVD special: two for $5.

Donna Gains is picking out a diamond ring from the glass-enclosed jewelry counter. It’s a gift from her son, Dace Lumpkin.

“It’s my 49th birthday,” Gains said.

Gains and Lumpkin are regulars at the store. “They’re one of my original customers,” said sales clerk Michael White.

“We come here all the time for electronics and jewelry,” said Lumpkin. “This is the best place to find TVs.”

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

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

Pawn America expects to do $63 million in sales this year, up from $57 million in 2010 and $47 million in 2009.

“Our success is our branding,” said owner Brad Rixmann. “Even when the economy is booming, our business is still growing. Pawn stores intrigue people. We have a lot of repeat business because people never know what will be on sale the next day.”

Max It Pawn, another Minnesota-based chain of pawn shops, has nine stores in the Twin Cities area and one in St. Cloud.

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

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

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

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

At the Pawn America warehouse in Burnsville, for instance, there are rows of musical instruments, motorcycles, snowmobiles and long-playing music albums. There’s space for gold and silver coins as well as Rolex watches and expensive rings.

Some of the goods are from the customer’s garage and basement, some from grandma’s attic.

Some, on rare occasion, are stolen.

State law requires photo IDs for all pawn activity — including selling goods to the stores. The transactions are videotaped, and they also are reported to a three-state law enforcement data base where the goods can be matched against missing items.

“The pawn industry is a legitimate business. Unfortunately it provides an opportunity for criminal activity,” said Eric Werner, a captain in the operations division of the Burnsville Police Department.

Werner said Burnsville has 16 pawn and secondhand goods operations under its jurisdiction. He said more than 100 stolen items in the city were detected by the database last year.

Rixmann said the Pawn America demographic is male, age 25 to 40, with annual income ranging from $30,000 to “low six figures.” The store put an emphasis on jewelry, and Rixmann said more women are starting to shop in his stores.

Pawn America recently began offering an extended service plan that provides buyers with a six-month warranty on goods for 10 percent of the purchase price.

Rixmann said he spends about $3 million a year in marketing with the emphasis on TV and radio.

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

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