Pawn Shop Key West Home Page
Determining the Amount of the Loan
To determine the amount of the loan, the pawnshop owner needs to take into account several factors. One factor is the predicted resale value of the item. This is often thought of in terms of a range, with the low point being the wholesale value of the used good, in the case that the pawnshop is unable to sell it, and they decide to sell it to a wholesale merchant of used goods. The higher point in the range is the retail sale price in the pawnshop. For example, a five-year-old Apple MacBook Pro may have been bought by the customer for $1000. However, as a used item in a pawnshop, it will only fetch $250 and $300,[citation needed] because the customers will be wary that it might be a "lemon" that the seller is getting rid of because it has some hard-to-detect problem. Used electronics wholesalers will buy the Apple MacBook Pro for $100 to $150. The wholesaler pays a lower price than the retail value because they have the added cost of hiring electronics technicians who overhaul and repair the items so that they can be sold in used electronics stores.
The pawnshop owner takes into account their knowledge of supply and demand for the item in question to determine if they think that they will end up selling the Apple MacBook Pro for $100 to a wholesaler or $300 to a pawnshop customer. If the pawnshop owner believes that there are "too many used Apple MacBook Pros around these days in town", they may fear that they will only get $100 for the Apple MacBook Pro if they have to unload it to a wholesaler. With that figure in mind as the expected revenue, the pawnshop owner has to factor in the overhead costs of the store (rent, heat, electricity, phone connection, yellow pages ad, website costs, staff costs, insurance, alarm system, confiscated items, etc.), and a profit for the business. As such, the customer who comes in with this Apple MacBook Pro that they paid $1000 for when it was new may be offered as little as $50 by the pawnshop owner, who is taking into account all of the risk and cost factors.
In determining the amount of the loan, the pawnshop owner also assesses the likelihood that the customer will pay the interest for several weeks or months and then return to repay the loan and reclaim the item. Since the key to the pawnshop business model is making interest off the loaned money, pawnshop owners want to accept items that the customer is likely to want to recover, after having paid interest for a period on the loan. If, in an extreme case, a pawnshop only accepted items that customers had no interest in ever reclaiming, it would not make any money from interest, and the store would in effect become a second hand dealer.
Determining if the customer is likely to return to reclaim an item is a subjective decision, and the pawnshop owner may take many factors into account. For example, if a young able-bodied man comes into the pawnshop to pawn an electric wheelchair (perhaps claiming it to be the possession of his late grandfather), the pawnshop owner may doubt that the item will be redeemed. On the other hand, if a middle aged man pawns a top quality set of golf clubs, the pawnshop owner may assess it as more credible that he will return for the items. Some customers may attempt to persuade the pawnshop owner that the item in question is important to them ("that necklace belonged to my grandmother, so I will certainly return for it") as a means of obtaining a loan. Other customers may return to the same store and pawn the same item(s) as a way of borrowing money, returning to pay the interest and recover the item(s) before the end of the loan period; thus, the pawnbroker knows that the likelihood of redemption is likely.
The saleability of the item and the amount that the customer wants for it are also factored into the pawnbroker's assessment; if a customer offers a very salable item at a low price, the pawnbroker may accept it even if it is unlikely that the customer will return, because the pawnshop can turn around a quick profit on the item. However, if a customer offers an extremely low price the pawnbroker may turn down the offer, because this suggests that the item may either be counterfeit or stolen.
The pawnshop owner takes into account their knowledge of supply and demand for the item in question to determine if they think that they will end up selling the Apple MacBook Pro for $100 to a wholesaler or $300 to a pawnshop customer. If the pawnshop owner believes that there are "too many used Apple MacBook Pros around these days in town", they may fear that they will only get $100 for the Apple MacBook Pro if they have to unload it to a wholesaler. With that figure in mind as the expected revenue, the pawnshop owner has to factor in the overhead costs of the store (rent, heat, electricity, phone connection, yellow pages ad, website costs, staff costs, insurance, alarm system, confiscated items, etc.), and a profit for the business. As such, the customer who comes in with this Apple MacBook Pro that they paid $1000 for when it was new may be offered as little as $50 by the pawnshop owner, who is taking into account all of the risk and cost factors.
In determining the amount of the loan, the pawnshop owner also assesses the likelihood that the customer will pay the interest for several weeks or months and then return to repay the loan and reclaim the item. Since the key to the pawnshop business model is making interest off the loaned money, pawnshop owners want to accept items that the customer is likely to want to recover, after having paid interest for a period on the loan. If, in an extreme case, a pawnshop only accepted items that customers had no interest in ever reclaiming, it would not make any money from interest, and the store would in effect become a second hand dealer.
Determining if the customer is likely to return to reclaim an item is a subjective decision, and the pawnshop owner may take many factors into account. For example, if a young able-bodied man comes into the pawnshop to pawn an electric wheelchair (perhaps claiming it to be the possession of his late grandfather), the pawnshop owner may doubt that the item will be redeemed. On the other hand, if a middle aged man pawns a top quality set of golf clubs, the pawnshop owner may assess it as more credible that he will return for the items. Some customers may attempt to persuade the pawnshop owner that the item in question is important to them ("that necklace belonged to my grandmother, so I will certainly return for it") as a means of obtaining a loan. Other customers may return to the same store and pawn the same item(s) as a way of borrowing money, returning to pay the interest and recover the item(s) before the end of the loan period; thus, the pawnbroker knows that the likelihood of redemption is likely.
The saleability of the item and the amount that the customer wants for it are also factored into the pawnbroker's assessment; if a customer offers a very salable item at a low price, the pawnbroker may accept it even if it is unlikely that the customer will return, because the pawnshop can turn around a quick profit on the item. However, if a customer offers an extremely low price the pawnbroker may turn down the offer, because this suggests that the item may either be counterfeit or stolen.
Inventory Management
Pawnshops have to be careful to manage how many new items they accept as pawns: either too little inventory or too much is bad. A pawnshop might have too little inventory if, for example, it mostly buys jewels and gold that it resells or smelts—or perhaps the pawnshop owner quickly sells most items through specialty shops (e.g., musical instruments to music stores, stereos to used hi-fi audio stores, etc.). In this case, the pawnshop is less interesting to customers, because it is mostly empty.
On the other extreme, a pawnshop with a huge inventory has several disadvantages. If the store is crammed with used athletic gear, old stereos, and old tools, the store owner must spend time and money shelving and sorting items, displaying them on different stands or in glass cases, and monitoring customers to prevent shoplifting. If there are too many low-value, poor quality items, such as old toasters, scratched-up 20 year-old TVs, and worn-out sports gear piled into cardboard boxes, the store may begin to look more like a rummage sale or flea market. Small, high-value items such as iPod players or cell phones must be in locked glass display cases, which means the owner may need additional staff to unlock the cabinets for items customers want to examine. As a store fills with items, an owner must protect inventory theft by hiring staff to supervise the different areas or install security cameras and alarms. Too much unsold inventory means that the store has not been able to realize value from these items to provide cash to loan to borrowers.
The better option lies in the middle: a store with a moderate amount of good quality, brand-name items arranged neatly in the display windows attracts passersby, who are more likely to enter and shop. If items are attractively laid out in display cases and shelves, the pawnshop looks more professional and reputable. Once passersby start shopping in the store, they may be more inclined to pawn or sell their own items to the pawnshop. Some pawnshop owners prevent cluttered look by storing overstocked items, or less attractive items such as snow tires, in a back room or basement. Some pawnshop companies operate a chain of stores in a state or province. This way, they can balance inventory between stores. For example, they can move some of a rural store's surfeit of fishing gear to an urban store.
Some stores also slim down inventory by selling items to specialty retailers. A pawnshop in a low-income neighborhood that pays a customer $300 for a power amplifier with a used value of $2000 may find the unit hard to sell alongside much less expensive merchandise. They may sell the amplifier to a used audio equipment store whose customers expect higher end equipment. Some pawnshops sell specialty items online, on eBay or other websites. A specialty item such as a high-end model railroad set may not sell in the store for its "blue book" value. On an online auction, it stands a good chance of bringing a good price.
On the other extreme, a pawnshop with a huge inventory has several disadvantages. If the store is crammed with used athletic gear, old stereos, and old tools, the store owner must spend time and money shelving and sorting items, displaying them on different stands or in glass cases, and monitoring customers to prevent shoplifting. If there are too many low-value, poor quality items, such as old toasters, scratched-up 20 year-old TVs, and worn-out sports gear piled into cardboard boxes, the store may begin to look more like a rummage sale or flea market. Small, high-value items such as iPod players or cell phones must be in locked glass display cases, which means the owner may need additional staff to unlock the cabinets for items customers want to examine. As a store fills with items, an owner must protect inventory theft by hiring staff to supervise the different areas or install security cameras and alarms. Too much unsold inventory means that the store has not been able to realize value from these items to provide cash to loan to borrowers.
The better option lies in the middle: a store with a moderate amount of good quality, brand-name items arranged neatly in the display windows attracts passersby, who are more likely to enter and shop. If items are attractively laid out in display cases and shelves, the pawnshop looks more professional and reputable. Once passersby start shopping in the store, they may be more inclined to pawn or sell their own items to the pawnshop. Some pawnshop owners prevent cluttered look by storing overstocked items, or less attractive items such as snow tires, in a back room or basement. Some pawnshop companies operate a chain of stores in a state or province. This way, they can balance inventory between stores. For example, they can move some of a rural store's surfeit of fishing gear to an urban store.
Some stores also slim down inventory by selling items to specialty retailers. A pawnshop in a low-income neighborhood that pays a customer $300 for a power amplifier with a used value of $2000 may find the unit hard to sell alongside much less expensive merchandise. They may sell the amplifier to a used audio equipment store whose customers expect higher end equipment. Some pawnshops sell specialty items online, on eBay or other websites. A specialty item such as a high-end model railroad set may not sell in the store for its "blue book" value. On an online auction, it stands a good chance of bringing a good price.