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Secrets From a Pawn Star

The business model of the pawn shop dates back over 3,000 years and remains largely unchanged: A customer in need of some cash gets a loan from a merchant, using a personal possession as collateral. The pawn shop holds the property for a predetermined amount of time, charging interest on the loan. If the customer can pay his debt before the deadline, he gets his property back. If not, it's the pawn shop's to resell.

While the basic transaction is much the same as it was in ancient China, the reputation of the pawn shop industry has fluctuated wildly. Pawn shops have often been portrayed and viewed as vaguely threatening stores located in seedy parts of town, where only desperate customers would dare venture to.

Today, the modern pawn industry has become something else entirely. Many of these shops, which also operate like small banks, are publicly traded companies and are becoming cultural phenomena. The embodiment of the new era of the pawn shop is Rick Harrison, star of History Channel's monster hit Pawn Stars and author of the book "License to Pawn". Harrison, who runs the Gold & Silver Pawn Shop in Las Vegas, Nevada recently sat down with Breakout to discuss the economy, misconceptions about his business, and the endless number of curios he comes across when dealing with the 3,000 to 4,000 customers coming through his shop every single day.

Harrison immediately addressed the lingering perception of pawn shops preying on the down-and-out, or especially in Las Vegas, desperate gamblers down to their last chips. Despite the tough times, nearly 80% customers reclaim their goods; meaning a pawn shop transaction is more like a bridge loan for the roughly 25 million Americans without a traditional bank account, rather than a legitimized loan sharking operation.

Which isn't to say the pawn shop business is impervious to the economy. Most assume the stores do better in a weak economy; but they don't. Harrison explains that it's the nature of buying and selling that changes based on economic conditions.

"When times are good, I'm buying less stuff and I'm selling more stuff. When times are bad, I'm buying at lot of stuff but it isn't moving like it used to," says Harrison. Reflecting the building slump in Vegas, there's a glut of construction-related goods coming into his shop, but very little demand from buyers. As any student of economics will tell you, too much supply and little demand means lower prices. "At this point, we have just stopped taking construction tools altogether. That's how bad construction is in Las Vegas," says Harrison.

While Harrison's front line view of his local economy is troubling, the beauty of the pawn shop business is that it can capitalize on whatever trend is hot at the moment. A car dealer is stuck selling cars regardless of vehicle demand. In contrast, the players in the pawn industry specialize in trends. Of course that brings us to the trading craze of 2011: Buying and selling gold and silver.

"I cannot keep gold and silver bullion in my stores at all," the retail rockstar said. "We buy it every day. Every morning I put it in my showcase and it's gone by noon."

But if you're ready to run to your local pawn shop to sell your jewelry, think again. Nobody in retail ever made money overpaying for goods then selling them at a discount. Harrison, like any successful pawn business, will offer a discount to the price you see quoted in financial news, and then sell your stuff at a premium if you don't pick it up before the end of his 120-day holding period. It's not personal, it's just business.

Pawn shops are also the last place to go if you're looking for a sucker to overpay for your junk. Harrison's store carries as many as 22,000 different items at any given time, or as he puts it, the shop has "one of everything." After 30 years in the business, he says it's "pretty simple" to spot counterfeits. And if an item is questionable, he calls in an expert to vet the goods. It's a good thing because there are plenty of hard-to-value oddities at any pawn shop, particularly one based in Las Vegas.

Harrison's store alone has a fist full of Super Bowl rings, four Olympic gold medals, the boots that jockey Hall of Famer Willie Shoemaker wore in his 8,000 race, and a Pee-Wee Herman doll sealed in its original packaging. But those aren't anywhere near the strangest thing on his shelves. At the moment Harrison is in possession of a 200-year old Japanese "pillow book" of the type he says were once given to Japanese brides on their wedding nights.

Ok then. Harrison says many of these rarities are more valuable to him as museum-type pieces than retail items. Museums may be the last thing you think of when considering pawn shops, but it's a new day for an old industry. Whether to hock an heirloom or simply check out the modern version of Ripley's Believe it Or Not stores, it's time to change the way you think of the pawn shop business.