Fallout: The Financial Crisis

Tough sell for overstocked pawn shops

Marketplace Staff Apr 3, 2009
Fallout: The Financial Crisis

Tough sell for overstocked pawn shops

Marketplace Staff Apr 3, 2009


KAI RYSSDAL: Christie’s auction house in New York City is about as far away as you can get from being a pawn shop, though they do have some similarities — offering previously owned goods for cash down. Those parallels were extended today. An anonymous bidder paid $460,000 for a guitar that once belonged to Roy Rogers. An OM-45 Deluxe Martin that Rogers bought at a pawn shop in 1933 for $30.

Today’s hammer price is a long way from what Rogers paid, but you’d expect pawn shops to do pretty well in a recession. But for owners of those shops, too much of a good thing can mean… owning too many good things. From the Denver suburb of Aurora, Co., Zachary Barr reports.

Zachary Barr: Scott Pasternack’s been in the pawn business 25 years, and he’s never seen it like this. He says most people used to just get $50 loans to pay their electric bill and now:

Scott Pasternack: They need $300, $500 to pay their mortgage. So they’re bringing in bigger dollar items like the plasma TVs, the nice pieces of jewelery, the artwork.

These are spoils of boom times, and for one customer, her most valuable possession is a shotgun.

Shop employee: This is a nice Winchester; 1300 defender. That’s a nice piece, sweetie. That’s great.

Christina: I think I bought it here.

Shop employee: You have nice taste.

Here’s how it works: Think of the pawn shop like a bank, only one that’s outside the credit market. Using the gun as collateral, a customer named Christina borrows $130. If she returns in a month to repay the loan — plus 10 percent interest — she gets her gun back.

Christina: That’s my gun. I’ll be back. I don’t plan on losing it.

Losing it is rarely part of the plan. For now, the gun goes into a back room for storage. That’s where owner Scott Pastenack is standing — surrounded by flat screen televisions and boxes full of DVDs.

Pasternack: The walls are bulging at the seams, everywhere we look we have a mess just trying to find space to put these items.

When a loan isn’t repaid, the items from this storage room go to the sales floor. And these days, more customers are defaulting, 40 percent compared to usual 25. And that’s not great news for shops, because now they have to sell those pawned items to get their money back. It’s just like a when a bank repossesses a foreclosed home. In fact, Pasternack says some pawn shops in this neighborhood are running out of money to lend out.

Pasternack: A lot of the bigger shops, they have signs on their doors that they’re out of cash, can’t make any more loans. It gets very tricky in an economy like this.

On top of the cash-flow problem, there are fewer shoppers, especially for expensive things, like gold jewelry.

Pasternack: The refiners are really the only ones who have money. So what we’re doing is — even the nicer jewelery — if it comes out we’re actually scrapping it, just sending it to the refiner to be melted, and getting paid the market value just to keep the cash flow turning.

Most of the gold never makes it onto the sales floor. As for the power tools, lawn mowers and mountain bikes? There’s always the old standby — lower prices.

Pasternack: Everything’s cheap; or inexpensive, that’s a better word.

Pasternack’s ready to make a deal. It’s a buyer’s market, he says, where you can expect to pay about half the retail price for anything in the store.

In Aurora, Co. I’m Zachary Barr for Marketplace.

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