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EZCORP, Inc. Message Board

  • tek_jansen500 tek_jansen500 Aug 24, 2009 2:04 PM Flag

    Question on pawn business

    I'm new to this company and board. I have to say, I like the margins and balance sheet and valuation of EZPW.

    My question is: why won't those big profits/margins get competed away? My naive impression would be that 1)pawn shops have a low barrier to entry, and 2) there isn't much advantage to be gained from economies of scale. So how does EZPW have an advantage over anyone else?

    Any thoughts would be greatly appreciated.

    Tek

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    • i have seen the other responses and let me tell you how easy it is to make money in the pawn business,,, if you saw the % return on earnings for mom and pop stores vs, the big chains you would be amazed,, they used to say hamburger joints never went broke, well they do,, when is the last time you saw a pawnshop go broke, especially in texas... no matter how poorly managed ALL pawnshops make money... smaller operations can be MORE responsive to loan needs and sell prices, bigger operations use the volume to make up for the mistakes their employees make, it's all about the law of averages and cost averaging... you do need some expertise in the top positions but if you think all the cash americas and ez pawns have REAL PAWNBROKERS running them on a daily basis, you are mistaken,, they use a system and manage numbers,,, when you b uy gold or loan on gold at a 40 pt margin on a daily basis gold numbers can make up for a lot of mistakes,, watch the scrap sales numbers for ez pawn and cash this last quarter, especially for ezpawn, they need all they can get to make their number.... will be interesting.....

      • 1 Reply to ezwatcher
      • <<<<when is the last time you saw a pawnshop go broke>>>>

        Actually, I've never seen one go out of business due to poor profitability.

        I knew one where the owner went to jail for shooting his ex-wife's lawyer though!

        Almost all the others are still in business unless the owner dies or something. The two I used to go to a lot in Virginia during the mid-80's are still there and still under the same name!

        -web

    • Market saturation with multiple locations in strategic points throughout the target neighborhood. Higher presence, more convenience, more cash available to lend out versus mom and pop shops (remember gold is at $1875/ ounce), much bigger marketing budget, and better customer service and training. The key is to become THE only choice for customers through intense market domination.

    • <<<<My naive impression would be that 1)pawn shops have a low barrier to entry>>>>

      You do have to have somebody with brains running it

      -web

    • Thanks everyone. Helpful replies.

      I can see how getting a permit to open a pawn shop might be easier for a big, reputable firm. Also, a big company might be able to push through resistance in a way that a small shop couldn't (look at Walmart). Any commentary on how often this is an issue?

      Capital doesn't count as a barrier to entry, or not a significant one. Maybe in today's credit-constrained times, but generally not what you'd call a barrier.

      Expertise, that could be something. Security could be an issue. Valuing the merchandise. I don't see either of them being a big barrier, but it could a little one. Comments on this?

      To phrase it another way: if I had $1 million, what is there to discourage me from going down to Texas, setting up a pawn shop and taking some of those profits from EZPW?

      Thanks again.
      Tek

 
EZPW
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