Merchandising Gains Importance as Inventory Grows


As more pawners find themselves unable or uninterested in redeeming their pledges as the holiday season approaches, many visionary pawnbrokers are looking to pump up the retail side of the business with marketing ideas both old and new.

Perhaps the most common merchandising method being employed by pawnbrokers is the application of layaway plans to their retail agenda. While some younger shoppers may never have heard of it, layaway plans used to be one of the foundation marketing methods employed everywhere from the United States to the United Kingdom (where the practice is known as “lay-by”).

The idea behind layaway is simple: if a shopper takes a liking to an item but doesn’t currently have the funds required to complete the purchase, they have the retailer put the item aside for a small down payment, usually 10 percent of the total cost.

The consumer makes regular payments within a certain time period, commonly 60 days, and once the total amount has been paid, the customer takes possession of the piece that had been “laid away” by the retailer.

The practice fell out of favor in the 1980s, as credit cards gained dominance and customers demanded instant gratification. In short, people preferred to get the item and then pay it off, even if that meant incurring interest charges.

But in 2008, with a growing recession, slumping consumer spending and the scarcity of credit, layaway plans began to make a comeback everywhere from retail chains to pawnshops.

Orlando-based Value Pawn & Jewelry (prior to its recent acquisition by EZ Pawn) decided to emphasize layaway with a promotional bang in 2008.

Based solely on a Christmas in July layaway-oriented promotion, the chain’s dozen-plus Orlando stores brought in a collective $1.5 million. West Palm took in $437,540; Miami did $410,408; Ft. Lauderdale scored $454,365; Tampa earned $754,628 and Jacksonville did $522,943. And the chain’s Atlanta store had the single highest amount of layaway sales with $252, 482.

“Our average store did almost $2 million in revenues and retail sales accounted for a lot of that,” says then-owner of Value Pawn John Thedford.

“Our focus was layaway, layaway, layaway. The word ‘layaway’ had more than double the interest among U.S. financial researchers in August 2009 than it had in August 2008.”

In fact, after EZ Pawn acquired the Value Pawn stores, it maintained Thedford’s policy. “Joe Rotunda, the CEO of EZCorp, spoke about rolling out Christmas in July to the whole chain on his last quarterly conference call,” John reported.

Competitive Plus

Thedford says that competitors have been slow to adopt layaway, giving pawnbrokers an absolutely spectacular competitive advantage, tactically and strategically.

“You strategically pursue the process of enhancing the business’s performance by focusing on layaways and, tactically, establish a layaway-only section in your store and then measure and incentivise your team members’ performance in the growth of that layaway balance.”

Thedford, who is currently opening a chain of six pawnshops in Puerto Rico, agrees that the process almost demands that retailers reprogram customers who have been living on a buy-now-pay-later paradigm for decades. But he also feels that the recent economic downturn may actually offer a silver lining in this regard.

“I think that our customers — and all customers have been affected by this financial recession — have found that frugal is the new cool,” he says.

“I think customers’ expectations have been reset. We’ve had a Depression-era type learning curve [to the point] where we’ve actually changed a generation of people. Even when the economy comes back, I think people are going to be much more frugal and will have learned that they can live on a lot less than they used to, and I think people are going to get much better at shopping.

“So even though that sense of instant gratification still exists, two-thirds or more of our $13 trillion economy in the U.S.A. is retail, so it’s a big chunk of what makes this country work. I think customers have become more rational; they still want to have it, but they understand they can’t have it right now. I know for my kids it has been a good thing.”

Success in the South

Mary Eaves, owner of the Biloxi Pawn and Edgewater Pawn shops in Biloxi, Miss., agrees wholeheartedly on the value of layaway.

“It boosts the sales every month to have that layaway. Heck,” she recalls, “I couldn’t have had clothes when I was a kid if my mom hadn’t had layaway.”
Eaves, with three decades of experience in the businesss never abandoned the venerable sales technique.

“I’ve always had layaway; I never discontinued it. I’m not speaking for other pawnbrokers, but as for the retail businesses in this area, I don’t think any of them have layaway. Wal-Mart stopped and the stores in the malls stopped layaway but I do have people doing business with me who do not have credit cards and they will put that 10 percent down and pay it off within 60 days, and it’s a good thing,” she says.

“I pay my sales people commission on the profit on sales and if they can’t sell it to a customer on that day, they can put it on layaway and boost their commission. I go 60 days with my people and it works fine for me. In our industry if you don’t have layaway, you’re missing a real opportunity.”

As for Thedford, he’s already bringing the merchandising technique to the half-dozen new stores he’s developed in Puerto Rico. Thedford, who has written a soon-to-be-published book, Smart Moves Management” based on his experiences in business, is a big believer in creating an “event style atmosphere” when running retail promotions.

“We are having Christmas in October,” he says. “It’s just an event to focus on an objective [which is] to grow the layaway balance. You can have Christmas in May. It’s an organized event that’s backed up with items that we focus on putting on layaway — for instance, a gold chain and charm might be a promotional item, and we require 10 percent down. The stores are decorated up like Christmas, we advertise on the local level, and for the whole month you emphasize the layaways so that they’re picked up around a week before Christmas day.

He adds that it’s important to set goals for the promotion. “You need to have a layaway goal every month,” he emphasizes. “You need a transaction number and a dollar goal every day.”

Operations Emphasis

Given all these examples of layaway success, why haven’t why some of the retail giants gotten the message? Thedford had a well-reasoned explanation.
“It’s because you’ve got businesses that are no longer driven by the operations team who are close to the customer; instead, you’ve got organizations that are being run by the financial team,” he says.

“Leadership is not all about the finances. There are other important metrics like employee engagement and customer engagement that lead to profitability. If you just look at it through the financial prism, you don’t see the whole picture. And that’s what bigger organizations can forget.

“We are an emotional economy; there is no question about that. People have stopped spending because they’re scared. Credit card debt has actually gone down so the ability to spend is greater than it was a year ago, but because people are afraid, i.e. emotional, they’re not spending. That’s why you need great leadership in an organization.”

And that’s where pawnbrokers have a great advantage: “When you’re closer to the customer you’re able to adjust your activities,” Thedford says.

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