Status of Industry Today & The Tsunami Prediction

By Jerry Whitehead

Posted with permission by the author

Hello Pawn Family!

It is with great pleasure that I have the opportunity to share some additional views on our beloved industry as we see it today.

RECORD STORE CLOSURES

As some of you have heard from me in the past, we are going to be witnessing record store closures on a global basis. PCG has been involved in a number of asset liquidations, consolidations, and direct sale of pawnshops this past year alone (2020) with the pace picking up in 2021.

Best estimates indicate there are some 1500 less stores in the USA today than there were 20 years ago. Some of this is due to attrition, family-owned businesses may not have had succession plans, or candidates in place to take those businesses on is in part to blame for some of this activity. Many stores have been sold off and consolidated at a growing pace, folks just closing down their businesses for good, disaster, riots, and various other reasons have also blended into the mix in times of recent as well.

We have seen over 5000+ stores have closed in the Philippines alone over the past 10 years or so followed by a good pace of closures in Mexico, Latin America, the UK, and in a number of other regions in the world today that we serve.

All of this post the merger of First Cash and Cash America, a transaction that consisted of a 950 Million Dollar Tax Free Stock Swap, which created the single largest public company in the world today with more than 2700+ stores in North and South America.

This action slowed down acquisitions in major US markets as the combined company has a significantly bigger presence in the major markets and has taken pressure off of them to continue to grow through acquisition in numerous key market areas.

Over the past 10 years a number of the larger independent chains of pawnshops in the USA have been acquired as well. Some 500 Million dollars’ worth of deals in that time frame have happened.

TODAY’S ENVIRONMENT

Covid19 has had a significant impact on our industry and the World as we know it. The USA has been hit hard economically – however the current trends do look promising if those in charge would get back to opening up everything and turning ALL of the light switches on!

The GAO today indicates more than 100,000 business in the USA have closed this past year and they estimate more than 300,000 will be closed by the end of this fiscal year.

The result of this will create at best estimates of 11-15 Million permanently unemployed people as their jobs and small businesses may never return.

Once all of the government stimulus dries up and businesses run out of capital, it is my best estimate there will be a huge turning point for our industry.

The stimulus money in the USA has had several significant impacts on our environment and industry in general.

One significant change we have seen has been a dramatic uptick to online sales. Amazon reported their first QTR of 2020, saw sales at 16 Billion over the same QTR in 2019. That’s a 60 Billion dollar increase in sales projected for just this one company for 2020.

For the Pawn Industry, we saw our loan balances plummet from March till about August primarily with the massive stimulus money circulated. Loan balances for our client groups and many others operating in the USA saw drops anywhere from 20 – 60% across the board from their pre covid highs in loans outstanding.

We saw retail sales rise to record levels for a number of our clients, with strong retail across the board for the industry as a whole in the USA.

THE DRAG EFFECT

The short-term gains of cash or capital seemingly is coming to an end as the next reality of what just happened is beginning to sink in.

For the stores that took significant hits in their loan balances, they are now taking significant hits in the pawn service charges, followed by less pawn defaults, which equate to less inventory available for sale, followed by declining retail revenues. 

This is a four-time hit for many in our industry which is also coupled with more challenges to acquire inventory from many of our product suppliers.

Many of us are suffering to acquire inventory as China has slowed production, shipping, and with increased tariffs and more has made it challenging to fulfill product as noted by many of our supportive vendors.

Many of our clients and the industry at large would enjoy acquiring more goods to sell, but remain challenged to find product – especially firearms in the current political arenas in the USA.

Firearms sales have seen record territory sales once again in 2020 with a strong increase this year already with many more first-time buyers of weapons in general.

This is coupled with scarce availability of firearm inventory along with challenges to acquire ammunition.  

PREDICTIONS FOR THE TSUNAMI

Our family has been in the pawn world for more than 60 years. On a personal level I have been serving our industry for more than 45 years, and have lived through a number of economic events in our country. Our family witnessed many in this industry running out of money during some of these downturns along with many others who perished up stream years ago because they did not prepare amply for the coming storms!

Many of our followers have heard me speak of this subject matter through our live zoom calls and more, the TSUNAMI IS on its way folks remains my prediction!

It appears the government is attempting to get more stimulus money out and as a result we may continue to witness brief periods of stagnant loan growth coupled with solid retail sales during those hopefully limited events.

For moments like this in our lives and businesses we need to find, hustle, and buy up more inventory for those of you who are not at optimum levels of inventory at this time.

Remember – don’t be greedy!!

Reasonable retail margins are better than high margins if you can turn your product quickly. This follows PCG’s widely taught industry standards of value pricing inventory to move it.

There are generally 3 types of people in this industry today: retailers, collectors, and hoarders, which one are you?

It appears that by the 2nd QTR of 2021 forward, we are expecting to see potentially substantial upticks in loan and cash demands coming to our stores. You will need to be as ready for this event as you possibly can.

Make those preparations now!

The loan cycle as we know it will most likely change during this storm, as many of those well qualified loans may turn into defaults. Value and qualify the customers and goods you see very carefully. We will see increases in your forfeiture rates across the board. Remember, many of these people will run out of stimulus and unemployment options sooner than later most likely.

We won’t be able to take it all and as the tide waters come rolling in, more selectivity in some markets will become paramount as to not over loan or overpay on product that you may or may not be able to liquidate if and when you may own it.

LTV or (loan to value) ratio’s need to be carefully considered on the customers and goods coming in.

ABC goods – A is high quality, hard to get, hard to keep, get it and produce it, and more importantly, sell it. B goods, everyday everywhere product, lend or buy to sale quickly. C goods, dead inventory, broken, outdated, obsolete, dump however you can. Donate, give it away, set it one fire, throw it away! It has a way of duplicating itself on YOUR shelves.

CONCLUSIONS

For our Pawn Family, please guide yourselves with open minds and be careful.

There are other events going on that may bring more havoc to our country. Many in our pawn family were in areas that have been affected by rioting, looting, and property destruction. Please, please be careful.

When it comes to your business, and I say this all the time, stores that are bright, clean, and friendly, with smiling, friendly, happy people in them who want to serve you, not only just do better, they often time avoid the ill will of others as well as good Karma does create good energy.

These are times for all of us to reflect on what is important in our lives. Tom Landry who used to be the coach for the Cowboys back when they were a real team (hah), said this about his life, “God, family, and the Cowboys” were the 3 tenements’ to his life.

BE thankful for what you have, just know you are TRULY helping people every day, do all that you can for them, cherish YOUR life, and love your team members, and most importantly, HAVE FUN DOING IT!!

We have one of the greatest gigs on earth in my humble opinion.

Do you need help or guidance? We can help you become more successful!

Thank you for following, much more to follow!

Written by Jerry Whitehead. Visit the Pawnshop Consulting Group blog for more content like this: 

Jerry@pawnshopconsultinggroup.com

954-540-3697