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Pawn Shops May Benefit from Fall of Jewelry Retailers Friedman’s & Whitehall

September 26, 2008 by Administrator 

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Local San Diego pawn shops stand to profit from having two less competitors in the crowded retail jewelry market. National Jeweler Magazine reports that Friedman’s Jewelers filed for Chapter 11 bankruptcy protection in January, with Whitehall following suit in June. This is a surprising development considering that two months earlier, the Chicago-based Whitehall acquired 78 shuttering Friedman’s stores for $14.3 million.

According to National Jeweler’s Top 50 2008 list ranking of the largest jewelry chains in terms of store units, Friedman’s was the third-largest chain in North America, listing a total of 455 stores before it went bankrupt, while Whitehall ranked at No. 5, with 375 stores as of April 11. These two Chapter 11 cases are a major shake-up among North American retail jewelry chains, knocking down two of the nation’s top five jewelry-only retailers in terms of number of store units. According to industry analyst Ken Gassman, Friedman’s shoppers, who brought in average sales tickets of $165 to $175, will go to Wal-Mart or pawn shops to buy their jewelry now.

Since Wal-Mart doesn’t sell pre-owned and restored-to-new condition jewelry that leaves a huge market gap for local pawn shops to fill, especially given the rising trend of consumers going to pawn shops to buy used jewelry which has been restored to look just like new. Unlike buying a used car, which after ten years of being driven, will never quite smell, feel, or look new (not to mention mechanical problems that continually arise with pre-owned vehicles), a used gold and diamond ring can be restored to look just as new as the first day it was bought. The only give-away might be the styling, but for classic traditional-style jewelry, this is rarely an issue, since certain designs never really go out of style for a large portion of the general population.

So where is the value factor here? Very simple: a pawn shop might loan $100 on a gold diamond-set eternity ring, which originally retailed for $700 (with manufacturing, wholesale and retail mark-ups, financing, packaging, warranty, service, and overheads, etc. making the difference between 100-700). That’s because the pawn shop has to assume that if the customer doesn’t reclaim the ring, he may need to melt it and sell the materials to a refinery and diamond brokerage, and the materials may only be worth $150. In the meantime, the pawn shop earns his profits from the interest charged on the $100 loan.

Let’s assume that after 6 months the customer decides not to re-claim the ring, so the pawn shop now owns it. And let’s assume that the ring looks nice enough to be re-sold, and that the pawnshop is not desperate for cash, and can afford to put it up for retail in his showcase. Many pawn shops are now taking such rings and sending them to a goldsmith to be restored to like-new condition (such that one could not really see any difference between this ring, and an actual new one at Wal-Mart). When the ring comes back, the pawnshop may have only invested $20 to have this basic restoration done (assuming he is sending regular business to the same goldsmith).

Now the pawn shop can put the ring out for sale at around $350 retail, but willing to discount it to $300 to close the sale. The end result is that the customer gets a like-new gold diamond-set eternity ring for $300, which she would have paid $700 for at a mall jeweler, or $500 for at Wal-Mart (since Wal-Mart buys direct from the factories, they by-pass the extra distributor’s mark-ups). So now we have pawn shops competing with Wal-Mart, offering fine gold like-new jewelry at substantial savings.

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When folks in San Diego look to sell gold it is often dental gold. If you are a San Diego dentist or someone looking to sell a gold filling then read this article before choosing a buyer: Advice for Dental Gold Sellers.

San Diego Pawn Shops, Gold Buyers, Gold Refineries, & More

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