Perry Lewin has been in the pawn industry for 28 years, but he’s never quite seen a year like this one. Sales have skyrocketed at his store, Decatur Jewelry and Antiques, in central Illinois. Early on in the pandemic, people were scooping up TVs, guitars, gaming systems, laptops, whatever they could to stay occupied and educated at home.
“We couldn’t keep a bicycle in the stock to save our life,” Lewin said. Tools were flying off the shelves, as many households decided it was the “perfect time for a honey-do list.” He estimates his gun and ammunition sales are up by 500 percent. “You know what it was like back in March and April, scared as hell,” he said.
But that doesn’t mean the pawn business has been good in 2020. Even the Pawn Stars pawn stars are struggling. This, at its core, is a money business, not a stuff business. The bread and butter is in loans.
“What happened is our inventory started depleting rapidly, and that was the result of consumers not needing the services of a pawnshop,” Lewin said, explaining that his central loan operation has been way down for much of 2020. “They were not bringing items in to us either to sell or get a loan on, but they were mining everything from us.”
Pawnshops are a longtime fixture in the capitalist economy — one pawnbroker told me pawning is the second-oldest industry in the world. (He asked me if I knew what the oldest was; I assured him I did.) But they remain relatively misunderstood by much of the public, especially those who don’t use their services.
I spoke with pawnbrokers across the country about what the business has been like in this unprecedented year, and the picture that emerged was a microcosm of the economy that flies under the radar for many. Pawnshops, which were deemed essential during the pandemic, experienced panic-buying trends — guitars, guns, and gold — in real time. They also felt the impact the CARES Act had in getting money into people’s pockets and small businesses’ cash registers because it meant people didn’t need their loans.
“We have loans where customers who have been with us for a very long time — 10 years, 20 years even — are now redeeming stuff completely, which they’ve never done before,” said Eric Modell, president of Modell Financial, which owns a chain of jewelry stores and pawnshops in New York. “And they don’t say, ‘I have money from the government, here I am,’ but 20 years you’ve been paying interest.”
But now that much of that support has ended, loans are ticking up again. People are heading back to the pawnshop.
Guitars, gold, and guns
When the pandemic hit, a lot of people had similar ideas on how to pass the time at home and what they needed to buy to do it. They turned to Amazon, sure, but also pawnshops. Brokers say they couldn’t keep at-home entertainment items, musical instruments, laptops, and tablets on the shelves.
But people haven’t just been making their purchases to stay entertained and educated. They’re also buying to ease their panic.
Gun sales have been through the roof in 2020, and some of the pawnbrokers I spoke to said they’ve truly never seen such a sustained boom in gun and ammunition sales as they have now, especially among first-time buyers.
Troy Farr, who owns Texas Pawn & Jewelry outside of Austin, recalled going to one of his stores on a Saturday during the spring to see how things were going and discovered 42 guns had been sold, “which is a lot for a pawnshop.” Forty-one of them had been to new gun owners. “I don’t know why they wanted a gun for a virus that was spreading, but I didn’t ask them,” he said.
Supply chain problems in the pandemic have complicated what gun sellers would otherwise see as a pretty positive increase in firearms sales, especially when it comes to ammunition.
Rob Barnett worked at his family’s pawn operation in Huntsville, Alabama, before starting up his own shop in Fayetteville, Tennessee, and he has spent decades in the firearms business. He says he’s never seen supply in worse shape, and perceived hoarding has only made the situation worse. “Once people start perceiving there’s a shortage in the industry, people start to worry and start buying things they don’t want,” he said.
Guns aren’t the only thing people buy when they’re nervous — they’re also buying gold, the price of which has increased fairly steadily for much of the year.
“Even though the prices of gold had gone up on account of Covid, people still felt the stability of gold and were investing in gold,” said Jordan Tabach-Bank, the owner and CEO of the Loans Companies, a high-end pawn brand that operates in New York, California, and Chicago. When people think the world might be going to hell — and 2020 has given them plenty of reasons to think that — they buy gold.
“That is a trend that has happened since the beginning of time,” he said.
Loans are a much bigger part of the pawnshop business than you probably realize
Everybody knows the Hollywood pawnshop tropes — the creepy guy smoking behind the counter in a seedy corner store, taking a stolen television off someone’s hands, probably so they can go buy drugs. But that’s not the reality. For one thing, it’s easier to sell stolen items online because pawnshops are pretty heavily regulated. But in recent decades, the industry has also made an effort to remake its image.
Pawnshops are a collateral, non-recourse lender, which basically means loans are made not on someone’s credit history but on the value of an item — a TV, a ring, a hammer, whatever. The length of a loan and the interest rate on it often depends on the state.
For example, in New York, shops have to hold on to pawned items for four months and can’t charge more than 4 percent interest per month; in Texas, it’s one month at a 15 to 20 percent rate for most items. People can sell their items to pawnbrokers directly as well, but that’s generally not the business model and not what most people do.
Basically, you bring in your watch, get a loan on it, get a ticket for it, and come back to redeem your watch at some point in the future, paying off the loan plus interest. If you don’t come back to pay off your loan — or at least keep paying the interest payments (some people leave items with the pawnshop for years) — the pawnbroker gets to keep your watch and can sell it.
“Absolute worst-case scenario with us, you lose your ring, you lose your watch. We do not garnish your wages, we do not ding your credit, we don’t prevent you from owning a home,” Tabach-Bank said.
According to the National Pawnbrokers Association, there are about 10,000 pawn stores nationwide that employ about 35,000 people and serve about 30 million customers annually. The stores run the gamut from publicly traded pawn companies, such as EZCorp and FirstCash, to small mom-and-pop operations. Many pawn businesses are multigenerational not only in ownership but in customers.
Pawn loans are “like clockwork for a lot of our customers,” Modell said. “There are people who live and breathe with the pawnshop.”
The NPA estimates that pawn loans average $150 for 30 days and that about 85 percent of loans are redeemed. That can vary, depending on the item — people are likelier to retrieve a family heirloom than they are a buzzsaw.
Pawnshops generally serve people without credit or with bad credit, though there are exceptions. They get compared to payday lenders, which are often predatory and suck people into cycles of debt. Are the interest rates pawnshops charge great? No. But on the scale of options for people without a lot of options, they’re not the worst, either.
“Pawn loans are, of course, one of the more expensive forms of credit, but they are often less costly than a payday or car title loan and are far less likely to trap consumers in long cycles of debt,” said Charla Rios, a researcher at the Center for Responsible Lending. “You do have instances where people are bringing in items, and they’re on loan for quite some time.”
She also noted the industry hasn’t really been growing. “Prior to Covid-19, the revenues for pawn loans were kind of flat,” she said.
Financially underserved consumers spent an estimated $189 billion in fees and interest on financial products in America in 2018, $9.2 billion of which went to pawnshops. By comparison, $25.4 billion went to overdraft fees.
“It’s a mixed story,” said John Caskey, an economist at Swarthmore College and the author of Fringe Banking: Check-Cashing Outlets, Pawnshops, and the Poor. “It’s not a complicated transaction where people are being swindled.”
Covid-19 has not been great for pawnshops
Whenever Tabach-Bank, the high-end pawnbroker, runs into people lately, they ask him about what they assume must be a boom in business this year. “People are like, ‘Business must be amazing, you must be crushing.’ But for most pawnbrokers across the nation, it’s been quite the contrary,” he said.
According to Cyndee Harrison, director of marketing and public relations at the National Pawnbrokers Association, members have reported loans falling by as much as 40 percent this year, and some shops have been forced to close down altogether. “When you have a 40 percent decrease in the core area of your business, that’s going to pinch,” she said.
There’s no single answer for what’s going on, but most pawnbrokers and experts have a two-pronged explanation. One is that people are staying home and spending less — they’re not going out to restaurants and bars, they’re skipping vacation, etc. The other is that the CARES Act, the $2.2 trillion stimulus package signed into law in March, got money to a lot of people by way of stimulus checks, expanded unemployment benefits, and Paycheck Protection Program loans to small businesses. Eviction moratoriums and forbearance on mortgages and student loan payments are also factored in.
In other words, people and businesses had more money, and they didn’t need to resort to the pawnshop to pay rent, float their payrolls, or even just go to the bar on Friday night. And it’s not just that they weren’t taking out new loans; they were also able to pay off their existing loans and redeem their stuff.
Kerry Rainey, board president of the NPA and owner of Bayou Pawn and Jewelry in Louisiana, described the situation as “complete madness and a complete change of our business structure.”
“Our pawns went way down, our redemptions went way up,” he said. And with all the extra cash, pawners turned into buying customers. “Now we’re having a hard time restocking the store and getting our inventory back up because of all of the sales that we’ve done.”
It’s an experience shared across the industry, among high-end shops and more typical operations, in blue states and red states.
“The way it’s turned out has been quite different than what we had anticipated, not only for us, but from some of the discussions we’ve had in other pawn stores in Las Vegas,” said Andy Zimmerman, the general manager of Gold and Silver Pawn in Las Vegas, made famous by the television show Pawn Stars.
Zimmerman said in their case, it’s not just about the stimulus and savings; it’s also the decline in casino traffic, especially earlier on in the pandemic. In Las Vegas, it’s not uncommon for gamblers to pawn items for money to bet with.
“When we’re at normal times ... especially when big events happen in town and people are well-to-do, they have expensive jewelry, and they’re not very lucky at the tables. Because we have a pretty decent-sized bandwidth to take in expensive items, during those times, the loans would typically pick up,” he said.
Many of the measures from the CARES Act have ended or are about to. The extra $600 in weekly federal unemployment ended in July, PPP loans have been used up, and rent and mortgage payments put off are coming due. Pawnbrokers say that’s started to show up in their business now, too, as customers old and new are again in need of their services.
The publicly traded pawn company FirstCash reported that loans fell by 60 percent in the month of April, and while they began to improve, pawn balances were still down 30 percent at the end of September from the prior year, meaning people are still pawning things less and able to pay off existing loans more. In its third-quarter earnings report, the company indicated it expects the rebound to accelerate.
“We are starting to see people who are in need of short-term cash,” Hyde said. “The big question, of course, is what happens next, and none of us has a crystal ball.”
The negative effects on lower-end financial services aren’t limited to the pawn industry. The payday loan industry has seen a steep decline in business, too.
Pawnshops are an outgrowth of capitalism. If people had more money, they wouldn’t need them.
When asked, most pawnshop owners acknowledged that they were in an awkward position: Many people have been better off financially, at least when government stimulus was flowing, and that’s been bad for business. But shop owners countered that business overall is generally better when the economy is doing better than it is when it’s doing poorly, an assertion that experts backed up.
While the impression of pawnshops is that they are only there for people in moments of desperation, that’s not always the case. People will also pawn an item to buy a concert ticket or get that last bit of money they need for a vacation. And in good times, they tend to feel more optimistic they can pay it off.
“A pawnshop tends to do best when the economy is good and rolling and people feel safe and secure with pawning their extra item — a laptop, jewelry, television, a watch — something like that so they can just get the temporary loan because they know they’ve got their next payroll check coming,” Barnett said. A one-time government loan doesn’t provide the same kind of future assurances.
For many people, the pawnshop is just a part of their financial lives, and some of their possessions are just a part of their budget. They build up relationships with brokers and will come in to get a loan time and time again.
Lewin, the Illinois pawnbroker, told me about a widow in her 70s who has been coming to him every month for years, getting a $200 or $300 loan on a nice piece of jewelry to tide her over before her next Social Security check comes in. When she comes to pick up her jewelry, they clean it for her, give her a cup of coffee, and catch up.
Yes, pawnshops charge high interest rates that more traditional financial institutions don’t. But they are also a lifeline for people who often don’t have access to more traditional financial institutions or just need to figure out a way to get by.
Wendy Woloson, a historian at Rutgers University and the author of In Hock: Pawning in America From Independence Through the Great Depression, noted that throughout history pawnshops have been vilified in an effort to downplay the broader flaws their existence exposes. “The exploitative practices that capitalism relies on would not have worked if it were not for the pawnbroker to help people get by week-to-week,” she said.
If people had more money in their pockets, if the capitalist system worked better, then they wouldn’t need pawnbrokers as much in the first place. 2020 has been a case study showing just that. But while more help is not on the way from the federal government, it’s still going to be there from the pawnshop.
“There would be a lot of people in a world of hurt if pawnshops didn’t exist,” Farr said.