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Friday, April 2, 2010

Do You Think Pawn Shops are Good Business is a Depression?

Question: Hi Marc. Thanks for your insight and for this blog...I love it. I know you've talked about pawn shops and cash advance stores. But are these a viable business in a depression? It seems pawn shops in my area are going out of business in droves. Thanks.
T.B. Boston MA


Answer Marc Charles:

If you Google me you’ll see I’ve been talking about the viability of pawn shops for a long time.
But more important, pawn shops can be very profitable in a Depression.

Have you seen Pawn Stars on History Channel?

If not, you should!

It’s a great show….and you can learn the “essence” of how to make money with them.

Making money is the key. Most pawn shops are either broke, saddled with debt or both.

Pawn shops can be an excellent source of income in a depression.

I’m not kidding.

What’s more, I made an amazing discovery about this market.

First let me warn you ……

Most of the pawn shop franchise opportunities available today are over-hyped and overpriced!

The best way to approach this business is to build and form your own brand…and franchise if you plan to expand.
But I found one franchise which may be worth a look.

First off….

I like the concept of a “franchise.”

Franchising can be applied to hundreds of markets and products. Franchising your product, service, or business is a great way to build a fortune.

Will Wright applied franchising to his software game The Sims in 2000, and the rest is history. The Sims franchise recently hit the 100 million units sold. At $39 a pop that’s a nice payday.

On a smaller scale, one-store franchises like The Mail Box Stores can be profitable too.

Sometimes you can acquire an existing franchise and hire someone to run it for you.

The Golden Rule of Franchising: Tap into a Rising Trend


When it comes to successful franchising it’s all about flowing the rising trend.

Trends are constantly changing and some are longer than other.

A hot franchise ten years ago could be history today when the trend is toast.

Pawn shops and cash advance stores tap into hot rising trends.

eBay Drop-Off Franchise Bites the Dust

You probably noticed a business trying to tap into a hot rising trend – the eBay drop-off center.

The business caters to people who understand the concept of eBay but do not have the time post, sell and monitor eBay auction listings.

ISold It on eBay was a franchise designed to help people sell stuff on eBay for a fee.

EBay drop-off centers may be a rising trend but not in the current form.

Most eBay drop-off centers today are riddled with problems, ridiculous up-selling fees (like $19.95 to change photographs or images) and excessive shipping charges.

But the concept of “eBay drop-off center” within an established company or franchise should do well.
An eBay drop-off center is not technically a pawn shop.

An eBay drop-off center differs from a pawn shop in a couple of ways. The main difference is immediate cash.
If you’ve never been to a pawn shop (or eBay drop-off place), let me explain.

When someone walks into a pawn shop they usually want cash for the items being sold (or a discount on an item they want to purchase).

An eBay drop-off center is more of a consignment agreement – people receive money IF and WHEN an item sells on eBay.

The Cash America Franchise Opportunity

Make no mistake about it, pawnshops can be very profitable.

I’ll show you the numbers.

The “pawnshop business model” has existed in one form or another for thousands of years. It’s certainly been around longer than most blue-chip companies.

Ten years ago, most people wouldn't be caught dead in a pawnshop.

If people needed cash they would just borrow from a relative, get a cash advance on a credit card, or tap into the equity in their homes.

But today the old methods for obtaining cash are drying up.

In other parts of the world, like Mexico, China and India, pawnshops are a common way of doing business.

There are more than 2,500 pawn shops in Mexico today, and the market is growing like wildfire.

Value Pawn and Jewelry in Orlando opened their first pawn shop in Mexico last year.

In the U.S., pawn shops are becoming an acceptable way of getting cash for every income level. The attitude is changing.

If you like the concept of a pawn shop, then a Cash America franchise may be worth considering... for several reasons.

The concept of an upscale pawn shop hasn't caught on with consumers yet.
The trend, though solid, is in its infancy.

But in most cases it will mean the franchises, like those offered through Cash America, are not overpriced (yet).

What the Heck Is a Cash America Franchise?

A Cash America franchise is a local store that provides a simple and convenient way for people to get cash for the items they own.

Customers can sell thousands of different categories of products and items to Cash America on the spot.

Cash America is also a great source of quality pre-owned merchandise such as computers, jewelry, home electronics, gold, video game consoles, sporting goods, tools, and even cars and motorcycles.

Cash America has reinvented the pawn industry with its modern buildings and business practices.

Most people will not be ashamed to walk into a Cash America store.

Cash America is a leader serving the needs of the under-banked community in the United States.

The members of this community don’t have access to “mainstream” financial services offered by banks or credit card companies.

They include lower income folks, immigrants, people that have recently gone through bankruptcy, and others. Some experts put this community at nearly 15 percent of the country’s population.

That’s a lot of potential customers, and despite what you may be thinking, they can be very lucrative customers.
Cash America more than 500 locations nationwide, and the company appears to be growing. The current owners (franchisors) also seem to be happy.

How Much Does a Cash America Franchise Cost?

The cost of opening a Cash America store will vary, depending upon the size and location. But start-up costs are between $200,000 and $300,000.

I know…….I try to avoid business opportunities with huge start up costs like this.

But we’re talking about a franchise with an established, recognized company in a hot rising trend.

I’m more accommodating when it comes to investing this kind of money in a viable franchise that is positioned in a rising market.

How Much Money Can I Make?

Oh yeah, it’s all about the money!

The amount of money you make with a Cash America franchise (or any pawn shop for that matter) will depend on your location and how efficiently you run your business.

Another consideration will be employee costs, and whether or not you want to be an absentee owner.
The most successful Cash America franchises are located at busy intersections, and are typically a short drive to major interstate highways.

Most franchise owners rent or lease retail space in popular strip malls or shopping locations. However, dozens of Cash America franchise owners choose stand alone locations.

From my research, I’ve found that most Cash America franchises have much higher cash flows and lower operating expenses than a typical fast-food franchise.

For example, let’s say a typical Cash America franchise in Las Vegas generates $650,000 in sales per year, with operating expenses (rent, employees, insurance, legal, etc.) of $250,000. This would leave a net profit of $400,000. Not bad.

On the other hand, if a typical Subway franchise at the same location generates $650,000 in sales, the operating expenses (including food costs) will usually be in the neighborhood of 70 percent to 80 percent.

If the operating expenses for the Subway were 75 percent, that would mean $487,500. The net profit works out to be only $162,500!

What’s more, I think the employee requirements and turnover would be much less with Cash America.

If you think that’s great, listen to this…

The Cash America profit margins will smoke most restaurants (and even most franchise opportunities). Profit margins on some items and loans can be as high as 50 percent.

The profit margins for a sub shop or a pizza restaurant can be as low as 8 percent.

Can I Sell the Stupid Thing If It Doesn't Work Out?

It’s relatively simple to unload a profitable franchise quickly if things don't work out as planned.
But, the current economic climate favors buyers.

A friend of mine tried to sell his pizza shop on a semi-popular beach for more than two years. He finally unloaded it at a deep discount.

I think a Hungry Howie’s pizza shop franchise at the same location would have sold much sooner, and without the need to extend a discount.

If a franchise has a trusted brand people know and love, selling it will be much easier. Selling into a hot rising trend is also easier than selling into a sinking, dying trend.

Think about it this way: Being an entrepreneur means taking calculated risks. If you can do this before the masses jump on board you could invest less money and make yourself a fortune.

I hope that helps!

Later..............
Regards,
Marc Charles

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