Sunday, June 11, 2006

You can always compete on the basis of service.

Especially in fields where there is none.


June 11, 2006
Off the Skids
Cash America

The core tenets of building a retail chain are well known. The stores need to be consistent and welcoming — a brand you can trust. This idea has guided chains for decades. It guides recent iterations selling organic vegetables, expensive lattes and well-designed kitchenware to what has been called the "mass affluent" consumer. And it guides chains of pawnshops. It turns out that there are several such chains, the biggest of which is Cash America: from one location in 1983 it has grown to 468 today, and it reported 2005 revenue of about $600 million.

Of course, when a new pawnshop location opens, it doesn't attract the same kind of attention as, say, a new Whole Foods. What attention it does get can be gauged by some of the "frequently asked questions" on the Web site of the National Pawnbrokers Association, a trade group for the industry: "Do pawnbrokers downgrade the neighborhood and hurt property value?" Or, "Do pawnbrokers attract indigents and derelicts?" (The site offers reassuring answers.) But if the pawnshop still seems, in the popular mind, like a seedy backdrop for some kind of illicit behavior, Cash America naturally takes a different view. According to the company's annual report (filled with images of happy and hard-working Americans), its "core purpose" is to "provide financial solutions that help ordinary people meet their needs and pursue their dreams."

More to the point, the chain sees pawnshop habitués not as the desperate riffraff of crime drama, or the exploited underclass described by critics of the industry, but as customers to be courted. Mary Jackson, spokeswoman for Cash America, calls those customers "young working families or single people who need a short-term loan." Maybe it's $100 for an emergency, or perhaps it's just a "cash management" issue, she says: "Some people use a necklace like others would a Visa card. You just use it continuously to get loans as you need them." Unlike other kinds of chains, Cash America doesn't really compete on price. After all, pawnbroking is regulated: interest rates vary from about 4 percent a month to 25 percent a month, depending on state laws, and in general the chain charges as much as it's allowed to. But Jackson says that it does do many of the same things any chain would. It conducts focus groups, stresses customer service, uses sophisticated software to track inventory as well as consumers' profiles and has even hired "mystery shoppers" to keep tabs on how individual stores are maintained and how friendly the staff is. "When you want to brand a store," Jackson says, "you are trying to separate yourself. We're separating ourselves from the independent pawnbroker."

When I mention "the unbanked," Jackson says that is not a term the industry cares for, because it "conjures up images of people who are ignorant or not sophisticated in their financial transactions." Cash America focus groups, she says, found that 60 percent of its customers do have bank accounts. Those who come to Cash America, she suggests, simply find borrowing $100 on that necklace to be more practical and easier to grasp than dealing with banks. It's also a "more disciplined" borrowing strategy, she notes, insofar as if you fail to pay off your short-term loan, Cash America will keep your necklace and sell it. Generally speaking, the chain would prefer that you pay back the loan, since it makes more money through those fat interest rates than it does from retailing seized collateral.

In any case, you don't have to buy into any negative caricatures of Cash America's customers to conclude that a thriving pawnshop chain tells a story about American consumers that undercuts the "mass affluent" theme. But maybe there's something useful in remembering the common ground between the Cash America constituency and every other chain-store customer. Jackson mentions the chain's entry into the Kansas City market, where a new location was able to thrive even though a locally owned rival took out a billboard to point out that his loan rates were better than Cash America's. But the local shop had "the old stereotype image," right down to a shirtless guy with a Doberman. Cash America competed with service, clean stores and employees with uniforms and name tags. "Just because you need cash for your personal items," Jackson says, "doesn't mean you don't want to be treated well."

Copyright 2006 The New York Times Company


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