After Michael Meyer got out of the Marines and then Texas A&M University with a degree in history in 2008, he took a career path less traveled: He went to work for an EZ Pawn store.
By January 2010, he put his experience behind the counter to good use when he and his father, Ken, bought an existing pawnshop on McCart Avenue in south Fort Worth. They renamed it Purple Heart Pawn & Gun, a nod to the medal Meyer received after being wounded in Iraq. Now, if conventional wisdom is right, he's part of a business built for recession, one that becomes supercharged when other consumer markets run out of gas.Well, not exactly, Meyer says, though there's no denying that pawnshops are in the spotlight.They've got their own TV show, the History Channel's Pawn Stars, now in its second season and one of the most watched cable programs, attracting more than 7 million viewers, according to the Nielsen ratings. The show features three generations of the Harrison family that run Gold & Silver Pawn Shop in Las Vegas, where they attract plenty of bling and valuable oddities.On Wall Street, the publicly traded pawn chains, including Fort Worth-based Cash America International and Arlington-based First Cash Financial Services, have become the darlings of investors in the past year, with their share prices more than doubling the S&P 500's 25 percent gain in that time.And gold's long run, which saw it top $1,600 an ounce last week, has helped boost pawnshops. Jewelry makes up a big share of their merchandise, and the higher prices have helped to swell the value of inventory and loans.Is this a guaranteed counter-cyclical business?"What the public thinks and what I actually see are not the same things," said Meyer, 27. "Business is good, but contrary to what people believe, we don't necessarily do great business when the economy is down.""Pawn has two sides, selling and loaning," said Meyer, who got interested in pawnshops after working at one during his senior year at A&M. "In one instance, our loans are up, we're definitely making more short-term loans. But we're selling less."At First Cash, which operates 646 outlets, "60 percent of our revenue is retail sales" of pawned merchandise, Chief Financial Officer Doug Orr said. "A lot of our inventory is gold jewelry, and that's a tough sell in this economic environment."And while Cash America and First Cash stock have done well in the past year (as well as shares of Austin-based EZCorp, owner of the EZ Pawn where Meyer got his start), they've had their rough spots during the financial crisis. Both Cash America and First Cash fell more than 50 percent by the time the market bottomed out in early 2009, and EZCorp wasn't far behind.Even the rise in gold prices is not all positive."All it does is increase the competition. Everybody and his brother now buys gold," said Alton Braxton, manager of Trader Jim's Pawn Shop in east Fort Worth.The big chains and the restThe big chains are certainly doing well financially. Just last week, Cash America and First Cash announced higher revenues and profits.But that's not necessarily representative of the business in general.The publicly traded pawn chains "represent about 10 percent of all pawnshops," said Emmett Murphy, spokesman for the National Pawn Brokers Association, which moved its offices to Keller three years ago."Their business models are more complex," entailing foreign operations and payday lending that most independent pawnshops don't get into, Murphy said.For example, Mexico accounts for the majority of First Cash's business, two-thirds of its stores and nearly all its growth. And Cash America gets slightly more revenue from payday loans than it does from merchandise sales, and nearly twice as much as from pawn fees."Most pawn brokers are mom-and-pops, or small chains," Murphy said.If the average pawnshop is a small operation, so are the transactions. According to the association, the average pawn loan in 2010 was about $100, up from $80 the previous year.Meyer said his average loan is around $100, whereas Orr said First Cash's average is $170 at its U.S. stores and $70 in Mexico.'Workingman's bank'Murphy said pawn loans tend to be larger in states that mandate lower interest rates and where more of the merchandise is jewelry. New York state, for example, limits pawn loans to 4 percent a month, plus a $10 service fee.Texas allows rates as high as 20 percent a month, a rate that's fairly common. The rate comes down as the loan amount rises, a mechanism also used in other states, including Oklahoma.For example, Texas' allowable rate falls to 15 percent a month on loans from $189.01 to $1,260, 2.5 percent on loans from $1,260.01 to $1,890, and 1 percent a month for loans above that.But Texas pawnshops don't tend to make many big loans, Meyer said."We're the workingman's bank, where you can get $60 to get a fill-up," said Jack Stallings, owner of Texas Best Pawn & Jewelry in west Fort Worth.There's some disagreement over whether the customers of pawnshops are changing significantly because of the recession."We're seeing more middle-class people, and even small businesses like restaurants," Murphy said. Meyer also said he sees some more affluent customers than he did when he first got into the business.But Dan Feehan, CEO of Cash America, said he doesn't think pawn customers have changed much. If there's been a change, he said, it's in the clientele for the company's payday loans, which are short-term advances backed by a customer's postdated check, rather than a piece of merchandise, as in a pawn."The theory is that folks have gotten squeezed out of more traditional credit markets," Feehan said. "But our core customer base" in the pawn operation, he said, has remained fairly consistent.Jim Fuquay, 817-390-7552How a pawnshop works
Pawnshops make money two ways: lending money on merchandise and reselling merchandise.
Pawn loan: A typical pawn loan is for 30 days at an agreed amount and rate, the maximum of which is 20 percent per month, or less for larger loans. The daily rate is 1/30th the monthly rate. When an item is pawned, the customer (minimum age 18) receives a ticket that includes a number of identifications of the parties and the item, the term, the finance charge and other disclosures. The item is redeemed by repaying the loan, plus the finance charge. If the customer does not redeem the item by 30 days after the term ends, the item may be forfeited.
Merchandise sale : Pawnshops may buy items outright for resale, or sell forfeited items. Sale prices are generally negotiable.
Pawn facts :
Tarrant County has 79 active licensed pawnshops; Texas has 1,253.
In 2009, the latest year with statistics available, Texans took out more than 10.6 million pawn loans for a total of $1.22 billion, or an average of $115 per loan.
A description of every pawned item, including serial number if available, must be entered in the Leads Online, a national database used by law enforcement officials.
Source: Office of Consumer Credit Commission, Austin
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