Marketing a Pawn Shop to Multiple Buyers

sg234098lrSelling a pawn shop requires committing to taking on a considerable number of challenging and time-consuming tasks, not the least of which include pricing the pawn shop, marketing it to the right buyers, managing negotiations, and being responsible for the terms outlined in contracts or agreements.

Which task takes the greatest amount of effort to perform depends on the unique attributes and challenges of a particular pawn business, but one thing that’s true for almost all pawn shop owners/sellers across the board is that they don’t anticipate how much effort it takes to properly market a pawn business to potential buyers.

If you’re marketing your business to one or more of the major pawn companies, you’re going to want to show them that your pawn business is scalable; in other words, you’re going to want to prove that your business can grow—not just now, while it’s still yours, but in the future, once the buyer takes over. This can take a lot of time to do, and can be almost impossible to do well if you don’t have firsthand knowledge of the major pawn companies’ inner workings. It’s one thing to make cash flow valuations based on your records; it’s quite another to try and prepare cash flow projections for a monster like EZPAWN or Cash America.

You should also keep in mind that although it’s almost always better to market your pawn business to multiple buyers, dealing with multiple buyers takes a lot of work. It can be all too easy to become so busy responding to buyers’ requests and inquiries that, before you know it, you’re caught up in multiple buying strategies and forking over your selling power left and right. When this happens, numbers start trending downwards. On top of that, the current business suffers. Many pawn shop owners who sell their shops on their own wind up struggling to remain profitable, or even just to keep their businesses manageable, during the marketing and selling/closing processes. Their focus is simply too split to manage both their dealings with multiple buyers and their pawn businesses well.

Pawn shop owners can make things much easier on themselves by enlisting the help of experienced pawn shop exit strategy consultants. While owners may be tempted to think, Why should I pay anything out to a consultant when I am a savvy business owner and capable negotiator, and could keep all the money for myself?, the reality is that exit strategy professionals, in addition to taking the bulk of the tasks associated with marketing pawn shops off of owners’ plates, 9.9 times out of 10, will get owners far more for their pawn businesses than they ever would have gotten on their own.

It’s Prime Selling Time for Multi-Store Pawn Businesses

If you ask any seasoned pawn professional what thing has had the most impact on the pawn industry in recent history, they’ll most likely tell you that it was the listing of the three pawn giants on the New York Stock Exchange in the early 1990s.

Ever since the three major pawn companies, Cash America, First Cash, and EZCorp, began taking on public investors in the 1980s, the three pawn giants have been competing to gain the biggest share of their market by buying up independent pawn shops across the US and abroad.  Since it is more profitable for these giants to invest time, money, and resources into purchasing pawn businesses that are made up of multiple shops, multi-store pawn businesses in the have been getting scooped up at a fairly steady and rapid rate for more than three decades.  As a result, there are now relatively few US-based multi-store pawn businesses left for the major pawn companies to purchase.

Sellers Beware

If you are the owner of a multi-store pawn business, you may have already been approached by one or more of the major pawn companies and presented with offers to buy.

If you are currently considering an offer or thinking of selling, perhaps the biggest mistake you could make is thinking that because you are in a position of power due to the current market landscape, all you need to do is pit one or more buyers against the other in order to close at the highest possible dollar amount you are capable of achieving.  Why?  It’s just not true.

The major pawn companies are trying harder than ever to not only buy valuable independent businesses quickly, but to gain as many advantages as they can during the buying process in order to make their investments as worthwhile as possible.  Make no mistake:  The major pawn companies are not throwing their monies around; they are doing everything they can to buy up the majority of the market strategically.  As the powerhouses of the pawn industry, they are using all of their resources to make potential acquisitions as profitable as possible.  In other words, when it comes to closings, they’re not going to do you any favors, and they’re not going to give you what you want simply because there are other buyers in the mix.

Sellers Relax

The good news is that you don’t have to through the selling process alone, and you don’t have to accept the best offer on the table blindly.

One of the main reasons Stallcup Group has had so much success in the pawn exit strategy consulting business is that its leaders have an advanced view of what is going on in the market.  They understand the tactics that the major pawn companies employ in an effort to avoid paying what an independent pawn business is actually worth, and have put in the time required to develop strategies that keep the ball in the seller’s court.

Enough time has passed since the major pawn companies appeared on the New York Stock Exchange for a considerable amount of expertise to be gained by those who are on the side of the seller.  If you’ve been approached by one or more of the major pawn companies or are considering selling your multi-store independent pawn business, contact Stallcup Group.  Stallcup Group will ensure that rather than being forced to sell your pawn business to highest bidder, you are empowered to sell to the right buyer at the right price.

Shop Talk: Cash America to Close 147 Mexico Pawn Shops

On September 27, 2012, Cash America put forth a press release announcing that plans to “discontinue the operations of approximately 147 of its jewelry-only Mexico-based pawn locations before the end of 2012.”  The press release also states that Cash America the 43 full-service stores its opened in Mexico over the last two years will stay in business, and that some of its jewelry-only pawn shops will be converted into full-service shops within six months.

First Cash has been a long-time frontrunner in Mexico, but until now, Cash America had been giving First Cash a run for its money–or, at least, presenting it with some healthy competition in certain regions.  While Cash America certainly isn’t out of the game in Mexico, the closing of 147 locations would certainly seem to indicate that First Cash will continue to be the frontrunner in Mexico for the foreseeable future.

A recent Star-Telegram article explains that Cash America entered the Mexico market in 2008 when it purchased a large chain with more than 100 jewelry-only shops.  The jewelry-only shops turned out to be a problem.  The article quotes Cash America CEO Dan Feehan:  “‘We found the market becoming highly competitive, with mom-and-pop locations going up everywhere.”

The article also quotes First Cash CEO Rick Wessell:  “‘The jewelry-only pawn shop model is a bad model,'” he said.  “‘There are probably 5,000 jewelry-only pawn shops in Mexico, versus maybe 1,000 full-service pawn shops–and we have more than 500 of those.'”

The moral of today’s Stallcup Group “shop talk?”  If you have a jewelry-only pawn shop, you might want to consider diversifying.  If you’re thinking of opening a jewelry-only pawn shop–don’t.  Until the market changes and gold prices aren’t compelling moms and pops to open up new lending businesses left and right, keeping a jewelry-only pawn shop afloat could be very tough–or even impossible, as Cash America found out the hard way just south of the border.

To read the Cash America press release in full, click here.

To read the Star-Telegram article, click here.

Shop Talk: Traders Ignore Profitable Pawn Shops and Pay Day Lenders

The Street reports that pawn shop and pay day lenders are trading down.  Easy Corp’s revenues and earnings per share are up, but the company’s stocks are down 36 percent for the year.  Similarly, pay day lender stocks should be doing well, but are not.

In the video below, The Street correspondent Debra Borchardt talks to Brian Sozzi, senior analyst at NBG Productions to find out why pawn shops and pay day lenders aren’t getting the attention from traders it would seem they deserve.

Sozzi recommends taking a look at First Cash.  According to Sozzi, First Cash is doing a lot of things right.  They’re currently the largest player in Mexico, winning out over Cash America, and their stocks are doing better than most.

Are you a trader trying to determine which characteristics you require of other pawn shops in which you hope to invest?  Are you a pawn industry professional looking to build your pawn business into one that traders will see as profitable even during tumultuous economic times? Whether you’re an investor a pawn industry insider, it appears as though First Cash is worth watching.