If you’ve ever considered opening your own pawn shop, you may have thought it was simple – set up a shop, fill it with inventory and open the doors. However, there’s a lot more planning and research that goes into opening and operating a pawn shop. Let’s dive into what it takes to open a pawn shop and create a successful business.
Do your research
Visit as many pawn shops as you can, both inside and outside of your immediate market area. Note what works well for each shop, as well as where they’re located and what kind of customers they attract. If there are multiple shops within the same area, pay attention to how they distinguish themselves. Attend industry trade shows and speak with fellow owners. This not only helps you make important business contacts, it also helps you learn the industry more quickly. Reading up on the industry in trade magazines or online can also help you learn more and clear up any misconceptions you may have about owning a pawn shop.
Understand the requirements needed to open a pawn shop
One of the biggest misconceptions about the pawn industry is how regulated it is. Because pawn shops are considered “financial institutions” under federal law, becoming a pawnbroker means you will have to understand and follow a number of federal, state and local regulations. At the federal level alone, this includes the IRS Code, the U.S. Patriot Act, the Gramm-Leach-Bliley Act, and the Truth in Lending Act, as well as federal firearms licensing and consumer privacy and protection regulations. There are severe fines and penalties for owners who fail to comply, either knowingly or unknowingly, with these regulations.
Licensing at the state, city or county levels varies by state, so it’s important to check thoroughly at all levels to make sure you’re adhering to the proper requirements. Besides obtaining some sort of business license, you’ll likely need to register for other licenses, including a pawnbroker and/or secondhand dealer license, a precious metal dealer license, a firearms dealer license and possibly more.
Focus on quality, not quantity
Most new pawnbrokers are eager to set up their showroom and start filling it up with all sorts of used merchandise. However, it’s more important to keep the “money lender” perspective in mind at first. Make sure you have sufficient start-up capital available to begin building up your pawn loan base. Make it as easy and clear as possible for potential customers to get the cash they need quickly and conveniently. The inventory will come quickly after that.
Also, make sure you have the right knowledge and tools to test and identify precious metals and gemstones. In most pawn shops, fine jewelry accounts for over 50% of items pledged for a pawn loan or offered for sale. If you or your staff can’t properly identify a diamond from a cubic zirconia or a solid gold ring from a heavily plated one, you will have a hard time attracting and keeping good customers.
Communicate clearly
Based on your location and the state and local regulations, make sure you adopt clear policies and procedures for how you do business. Ensure your customers are just as clear on how you run your operation as you and your staff are. This includes everything from the minimum amount of time you can hold collateral from pawn loans or how you store and secure merchandise, to how you complete a pawn loan transaction, including all the applicable finance charges and fees.
Create a community of support
Set up time to meet with your local law enforcement team. Meeting with local law enforcement helps you and your customers in several ways.
First, it helps build trust and transparency right from the beginning. Second, it not only helps protect your business and your customers, it helps deter crime. No pawn shop owner wants to be suspected of dealing with stolen property, so being proactive with your local sheriff’s office and police department helps recover stolen goods and punish thieves.
Design with your customer in mind
Your customers should feel safe and comfortable in your shop. It’s important to select colors, lighting, signage, flooring and other design finishes and security features for your space that make your customers feel welcome. You’ll also want to think about available floor space versus inventory, and how to best lay out the flow of your shop, based on your customers’ needs. For example, your jewelry area should be clean and brightly lit, while other areas of the shop may feel more home-like, with seating areas, muted lighting or warm colors and textures.
Focus on ways you can specialize
Again, the name of the game here is distinguishing how your shop is unique and why customers should shop with you. Some shops may specialize in a particular niche or selection of items, especially if the store staff is extremely knowledgeable and passionate about it, whether that’s comic books, sports memorabilia or antique furniture. However, being able to offer a wide variety of specialty items means you can be more creative in your business and potentially attract even more customers.
If you do specialize, you’ll likely need more education and/or tools to properly authenticate luxury items, such as high-end watches, vintage jewelry or exclusive name-brand handbags. Customers expect you’ve done your due diligence to thoroughly review and verify legitimate luxury items, so take advantage of training opportunities, expert advice and authentication tools that help you build specialty merchandise into your business.
The Gene’s Jewelry Pawn difference
As you can see, it takes much more than just stocking a lot of secondhand merchandise to successfully open a pawn shop. And, with over 30 years in business and three locations to serve you across the Lowcountry, we here at Gene’s Jewelry Pawn have worked hard to create and establish a business that caters to you, our dedicated customers. We listen carefully, carry a vast variety of quality merchandise, and provide the professional expertise, tools and advice to ensure you are getting the absolute best value possible when you shop at Gene’s. Visit us today and let us show you why Gene’s is a cut above the rest!
