National Public Radio’s Kai Ryssdal decides to see if the ups and downs of pawn business are useful in tracking the economy, the way car sales or home turnover are used.
Michael Mack, a fourth-generation pawnbroker explains that, yes, pawn shops are affected by swings in the overall economy, but buffered, too. When booms come, the retail side improves, while the loan demand may drop; and vice versa in slow periods.
“Pawn shops do well in most every economy,” he argues. “We loan more money in the downturn; we sell more merchandise in the upside. So we try to hedge ourself both ways.”
At Kamaaina Loan, we use the RolexIndex. When the real estate agents start bringing in their Rolexes, we know the downturn has begun. But that’s Maui, where real estate turnover, especially on the high end, is more important to the overall economy than in, say, Dubuque.
Mack also lets Ryssdal know that pawn changes, too. When he takes some big collateral (like a plane), he does not hope the borrower fails to repay.
In the old days, Mack told Ryssdal, that might have been the thinking — make a big score by selling the big collateral. But no longer.
Today, pawnbroking, like many another sector, is a relationship business. Mack’s Max Pawn and our Maui pawn shop both operate on the theory that it is to our advantage to have borrowers repay and reclaim their collateral. And, Mack says, maybe return later to do another transaction. We don’t want to keep your gold ring. We want to keep you as a customer.
The profits from selling collateral are never as juicy as they look to outsiders. Just ask any mortgage lender stuck with a foreclosed house over the past six years or so.