ANALYSIS - Pawnshops cash in on booming economy **PMRT**
By Kristin Roberts
NEW YORK, March 11 (Reuters)- There goes the neighborhood.
Pawnshops, which have a reputation for profiting off the downtrodden in poor neighborhoods, are
increasingly setting up next to mainstream retailers in leafy suburbs to sell to more upscale consumers and
capitalize on the booming economy.
With 1998 capping off five years of growth, the nation's biggest pawnshops have found a way to make
money off people who have money. In the process, they trashed traditional ideas that the business -- and their stock prices -- thrive
only in times of economic turmoil, industry sources say.
''We're not in the typical pawnshop part of town with a typical pawnshop-looking store,'' said Carson Thompson, chief executive of
Fort Worth, Texas-based PawnMart Inc. (Nasdaq:PMRT - news)., the industry's third largest. ''Ours looks like a specialty retailer.''
Pawnshops historically have bought and sold used goods like clothes, cameras and even guns, and taken merchandise as collateral on
small $75 to $80 loans. Many items, store owners say, are in good condition and can be bought for less than new products at discount
retailers.
Now four chains, three public and one private, have emerged to inject what they call ''professional management'' into the business,
drawing middle class customers who might otherwise find bargains at K-Mart.
Cash America International Inc. (NYSE:PWN - news), First Cash Inc. (Nasdaq:FCFS - news), PawnMart Inc. and privately-held
EZ Corp. all boasted steady growth in 1998, which economists say may be one of the most impressive years of U.S. economic growth in
the 1990s.
Analysts are not surprised at the bullish results even in a healthy economy because they see most people, whether middle class or not,
as overspenders. Regardless of the typical shopper, an image change will fuel growth.
''Most people live beyond their means,'' Tim Stobaugh, an analyst with Stonegate Securities, said. ''When people have a job and are
working, they tend to extend themselves financially and they use the pawn shops.''
Indeed, pawn operators claim their average client has an annual income of more than $31,000, well above the national poverty level.
Company executives say that while they command only a 7 percent share of a market totaling 10,000 to 15,000 small-time shops,
they plan to keep profits growing with aggressive acquisition strategies.
''A little consolidation in the industry, a higher class of management, will add more to the bottom line,'' Joe Kercheville, Kercheville
& Co. analyst said.
But beyond consolidation, doubts remain over the industry's ability to weather basic changes in the business. The concern among
sources is how to keep pawn store shoppers from buying pricier new goods as they grow wealthier in a healthy economy.
Cash America's Chief Executive, Jack Daugherty, shares that concern, but it is tempered by his view that the number of Americans
who make do with cash and no credit cards is growing.
''The pie is getting bigger,'' he said in an earlier interview. Executives of Cash America, which is the leading chain in terms of total
stores, were not available all of last week for comment.
Stobaugh agrees that the pawn stores's target market is growing as the size of the $18,000 to $35,000 income bracket actually expands.
''There are people who always have a need for money. And while that may vary with economic times, it's always there,'' Stobaugh
said.
But excluding a grand analysis of whether the country's wealth reaches all Americans, what remains is the need for pawnshops to
diversify their business, change their image and position themselves as mainstream retailers.
PawnMart brazenly attacks the image problem by opening shops next door to retail giants betting its lower prices will win out. Oh,
and PawnMart is the one that doesn't sell guns.
PawnMart calls itself anticyclical, resisting major economic swings because of such positioning near discount retailers like K-Mart
and Wal-Mart Stores (NYSE:WMT - news), that do better than most retailers in tough times. |
