Stanley Lukowicz III addresses new pawn shop study

Source: The Sacramento Bee

Pawn shops, once considered the seamy underside of commerce, have become a mainstream destination for individuals and small businesses looking to cope in today’s economy.

As a result, many pawn shops are prospering both locally and nationwide.

A recent market report by Los Angeles-based industry research firm IBISWorld said the pawn shop industry “has thrived through tough economic times,” with a 2.6 percent annual growth rate since 2006.

During that time, industry profit margins increased from about 15.5 percent of revenue to 17.5 percent.

IBISWorld forecasts 2011 revenue at $6.1 billion nationwide; it’s expected to approach $7 billion by 2016.

IBISWorld’s analysis flatly states: “Declining economic conditions, including rising unemployment and falling income, have caused cash-strapped consumers to turn to pawn shops for immediate relief.”

None of this is a surprise to Stanley Lukowicz III, vice president of Sacramento-based Capital City Loan & Jewelry, which has eight local pawn operations and will soon open a ninth in West Sacramento.

“We call ourselves the lenders of first response,” Lukowicz said. “We were actually seeing things happen in our shops before the recession. We could see that things were getting tougher out there more than three years ago.

“We’d have a small businessman come in and say, ‘I need to make payroll,’ and we saw more customers who were trying to make it through the tough times.”

Lukowicz’s father founded Capital City in 1992 and remains president of the family-run, 75-employee business. Stanley Lukowicz III’s brother, Daniel Lukowicz, also works as a co-owner.

Daniel Lukowicz noted that he’s seeing a lot of “nontraditional” customers coming into Capital City outlets, folks “who might not have come into a pawn shop a few years ago.”

Consequently, Capital City transactions have ballooned, now running at about 28,000 a month company wide.

Items sold in Capital City outlets run the gamut. Pawn shop staples such as jewelry, watches, tools, musical instruments and electronics line the shelves. But they share space with bicycles, video games and toys.

Digital cameras are numerous, but Stanley Lukowicz said their value tends to go down as camera technology evolves. The same is true of smartphones.

Stanley Lukowicz said more customers are bringing in high-end items, including two- to three-carat diamonds. The shops also handle transactions on motor vehicles.

A vast maze of storage areas at Capital City’s shop and corporate headquarters on Auburn Boulevard is packed with power tools of all stripes – evidence of economically hard-hit construction workers and businesses taking short-term loans to make ends meet.

Capital City will even act as your agent on eBay.

A random sampling of local customers looking to pawn or sell possessions reflected the times.

“My wife and I are counting pennies just so we can pay the bills. We’re trying to squeeze out every cent we can,” said Sacramentan Rick Sylvester, looking to sell a collection of hand-painted Revolutionary War toy soldiers.

“Christmas is coming up, so it’s time to sell these, or the kids might not get any gifts,” said Sacramentan Anne Kehl, carrying a box of colorful holiday nutcrackers.

At Capital City, however, gold is king.

The skyrocketing price of gold has produced a flood of customers. Stanley Lukowicz said about 75 percent of loans companywide are now tied to gold.

“Our revenue is up because gold is up,” he said.

And unlike cable TV reality shows featuring pawn shops, the overwhelming majority (95 percent) of Capital City’s transactions are loans, not shop purchases of customer belongings.

“Most of the time, people need a loan to get by,” Stanley Lukowicz said. “And 85 percent of our (pawned items) are redeemed, with interest (paid).”

For a typical 90-day loan of $100, that translates to repayment of $117.50. Capital City’s average loan in September 2007 was $62.75; in September this year, it was $106.25.

As in other states, California pawn shops are regulated. A pawn shop must send notice to a prospective default loan customer four months after a transaction. If the loan is not repaid within 10 days after that, then the shop can legally claim the item.

Regulations also include customer identification, a signature and a thumbprint on new pawns and most buys. Capital City sends that information to law enforcement several times a week. A 30-day hold on buys also is required.

In some locales, transactions are videotaped, and merchandise is matched against missing items in law enforcement databases.

The regulatory hoops are designed to cut down on the once-common practice of thieves moving stolen merchandise through pawn shops.

For all the shop activity, Stanley Lukowicz said increased customer traffic “is a double-edged sword” because “our loans are increasing, but our retail sales are down.”

Lukowicz said reduced retail sales translate to less working capital. To sustain loan and business growth, pawn shop operators also have to borrow.

“In a good economy, your sales and interest cover overhead and growth,” he said. “In a down economy, your sales cover overhead and maybe some growth, so you need to borrow. And I am unaware of any place that money is free.”

Rick Smith, manager of Action Loan & Pawn on Fulton Avenue in Sacramento, said it’s a mistake to assume that all pawn shops are raking in piles of money.

“I’ve only been doing this for four years, and I have four employees. If I can keep them paid and get them health insurance, I’m happy,” Smith said.

Smith said it’s also a mistake to assume that pawnbrokers want customers to default on loans.

“That’s really what we don’t want. I’d rather make my few hundred dollars (on a loan) and have them get their valuables back. We want to help people get through their hard times.”

Even so, the proliferation of pawn shops in the mainstream financial lending/retail sectors has spawned some players decidedly removed from past pawn shop history.

The high-end Boca Raton Pawn outlet in South Florida touts designer handbags, pricey power boats and eye-popping five-figure watches. In June this year, the founders of the Groupon daily online deal helped launch, which bills itself as “the first full-service online pawn shop” in the United States.

These newcomers might ultimately change the pawn industry, but IBISWorld’s report forecasts this for the short-term: “Low-income households will continue to be the industry’s core consumers.”


The model: Pawn shops offer secured loans to individuals who put up personal belongings as collateral. Pawnbrokers also buy items from a seller for a mutually agreed upon price.

Pawn trivia I: The origin of the word pawn is from the Latin pignus, meaning pledge. The pawn business model dates back centuries, to ancient Greece and China.

Loan terms: Terms vary by shop and location, with many states mandating specific terms. Typically, a pawnbroker loans out cash for a pawned item, which can be reclaimed by the owner within three to four months, provided the loan recipient repays the loan, with interest. Interest usually varies by loan amount. If an owner does not reclaim a pawned item (within four months and 10 days in California), the pawnbroker can legally claim the item and offer it up for sale in his/her shop.

Soft default: Failure to pay back a loan to a pawnbroker does not go on a customer’s credit report, since the pawnbroker assumed risks and can reclaim value through an in-store sale.

Market forces: Pawnbrokers rarely, if ever, offer collector or retail prices to a seller, due to the age and use of for-sale items and the pawnbroker’s cost of restoring and packaging the items for sale in the shop. Likewise, once- pricey electronic items will fetch less money at a pawn shop if the technology associated with the items has evolved significantly.

Pawn trivia II: Historians point to multiple origins of the classic pawn shop symbol – three spheres suspended from a bar. Many center on the Medici family of Florence, Italy. The Medici Bank was Europe’s largest in the 15th century, and some historians note that three spheres were part of the Medici family coat of arms. Other historians say the symbol was displayed by medieval merchants in the prosperous North Italy region of Lombardy. “Lombard” was synonymous with “pawn shop” in the Middle Ages.

Star power: The general reputation of pawn shops has been further boosted by the popular History Channel show “Pawn Stars.” Started in July 2009, the series profiling business at the family-owned Gold & Silver Pawn Shop in Las Vegas quickly became the cable network’s highest-rated show.