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20 april 2009

After the January lull at pawnshops, in February the owners of Moscow apartments located in posh Kutuzovsky Avenue were again busy pledging their belongings, Prime-TASS reported. They were even not so much pledging them as virtually selling. Pawnbrokers were mainly visited by wives and mistresses of wealthy people. They were getting rid of jewelry to have straight cash right now and ready to eat great discounts, Ilya Mitasov, CEO of Luxe Collection, told Business FM and added: “Pendants and diamonds were sold at half or quarter their price. Before this time, there were virtually no such cases. Just as an example: recently a watch worth $20,000 on the market was sold for $5,000.”

On the average, customers pawn their watches worth from $2,000 to $10,000. Half of the customers do pawn them, while the other half are just selling them straight away. Experts predicted that in crisis environment the number of people bringing their things to pawnshops would only rise. But life proved the contrary: according to Lyudmila Sevtsova, General Manager of the Vremya Pawnshop, everything stayed within normal limits. The only difference was that the majority of customers were now bringing their belongings to pawnshops to leave them there for ever.

The Obyedinenny Lombard Company has registered a 10-percent rise in the number of their clients in a month. Things are being pawned and then bought back. It means people still have some money and the general situation is not crisis-ridden, believes Dmitry Terentyev, CEO of Obyedinenny Lombard, saying: “People pawn gold items and table silver. Ten percent of them do not buy back their things. But this is within regular limits. Usually such limits are 8-10 percent, but now it is 10-12 percent.”

Pawnshops say their foot traffic is growing. People are now more careful in choosing pawnbrokers – they probe them for higher prices offered for their things. Mikhail Unksov, President of Liga Lombardov, a non-for-profit organization, told the Novye Izvestia Daily that the inflow of customers started to grow as far back as last October and increased almost every month. Thus, during one year the pawnshop foot traffic in Russia went up 17%. “These data refer to long-established pawnbrokers and appear to be an important indicator. It is very difficult to “hold” permanent clientele for a long period. Customers eagerly visit newly opened pawnshops which have no problems with their “attendance,” the expert said. According to him, in January pawnshops used to process an average of 200 pledges a day, while in February the figure was 230.

As for the “money side of the matter,” the best Moscow pawnbrokers offer 3,500 roubles per one item, while an average client’s ‘take” amounts to 12,000-14,000 roubles. The expert’s observation is that in the western part of the megapolis Muscovites resort to pawnbroker services more often than in the “modest” eastern part. Gold jewelry is still a top mover. “Russian pawnshops are mainly visited by middle-class people who have relatively stable salaries and jobs, but their needs are ahead of their capacities,” Mikhail Unksov concluded.

Aleftina Gulyughina, deputy executive officer of the Center for Income Problems and Social Protection at the All-Russian Center for Studying Living Standards told the Novye Izvestia Daily that pawnshops are now turning more and more popular not only due to financial difficulties experienced by the Russian population, but also by negative psychological expectations of the Russians. According to her, pawnshops will be even more popular this year, because people start to understand that this is one of the easiest ways to repay their credits.

In Great Britain conventional pawnshops go online, reports. According to the Times, British pawnbrokers hope to lure new customers in their toils - attracting more middle-class visitors, those who might, perhaps, still feel a stigma by passing through the doors, but nevertheless ready to pawn their family silver or sport cars online. They have been encouraged, too, by the presence of Borro, an internet start-up proving this business model may be a success in this crisis.

Using the services of pawnbrokers lending money against the surety of valuables has never been considered commendable. Even in Great Britain where pawnshops are run by well-established firms with a long history their middle class borrowers account for mere 10 percent of the clientele. The remaining 90 percent are people without permanent jobs having low incomes.

Borro, the world’s first online pawnbroker, has managed to change the state of things. The company started its operation in July 2008. Borro offers its customers to fill in an online form to get their money. The web site lends money against various valuables, from jewelry and watches to expensive cars.

As the next step, the customer is visited by a no-cost messenger who takes the surety away. After that the online company offers a credit amount and if the customer accepts it remits the money. The customer has six months to call in his or her credit and have the messenger bring the item back. In this manner, the customer may receive money staying home all the way.

According to the Times, Paul Aiken, Borro’s founder, said: “People now openly talk about trading stuff on eBay. Our idea is that you can now free up equity from things you own for short-term loans without having to sell.”

The concept proved success. During the seven months of its operation Borro’s turnover was comparable to that of four or five pawnbroker outlets in downtown London. The company plans to push it upward at least four times. Borro, Paul Aiken added, tended to loan an average £700, compared with about £120 lent by high street pawnbrokers. About 75 per cent of the site's customers have never pawned an item before and about 70 per cent of them are in the middle class AB demographic — professionals and management.

Having been inspired by Borro’s success, two other British companies specialized in pawnbroking are planning to go webwards too until the end of this year. However, it needs to be noted that conventional pawnbrokers are well off even without the Internet. There is ever growing demand for their services. Albemarle & Bond, which is the largest pawnbroker in Great Britain, revealed a 19-percent rise in half-year pre-tax profits. It plans to open 30 new stores over the next three years, a 26 per cent increase on the 114 outlets it has at present.

In case of a sharp or “velvet” type depreciation of the rouble against the U.S. dollar, jewelry prices will go up either abruptly or smoothly. And this means that in a highly competitive environment those pawnshops, which have insufficient capital to meet people’s borrowing needs against surety of more and more expensive jewelry, will be forced to close, maybe completely losing their clientele, says Nikolay Chukovsky, CEO of OOO LomBard, who agreed to answer the questions posed by the Stavropolsky Business Daily.

Simultaneously, in his opinion, the biggest winners will be those pawnbrokers, which have outside crediting sources. However, there is one kind of danger for them too – they may become overstocked with gold. But the problem may be viewed from another angle. Sooner or later the crisis peak will pass leaving pawnbrokers with a “gold reserve” instead of depreciated money and this gold will anyway stay in demand. Nikolay Chukovsky notes that in his opinion gold demand will be above usual in the post-crisis period.