By September 21, 2011 0 Comments Read More →

Pawn Stars — How To Win At Haggling

If it’s true that American Chopper is a metaphor for the workplace then there’s little doubt that Pawn Stars is its retail equivalent, a place where each week viewers get a chance to see the odd, the interesting and the way business really works.

With the economy the way it is — driven into the ground for many people — one attraction of Pawn Stars is fairly obvious: Maybe we also have stuff that has hidden value. Perhaps not a canon or a boat, but maybe something Grandma left in the basement.

One of the great curiosities of the program is the effort sellers make to get the best prices for their goods. Some do okay, a few do far better than they hoped, but many come away with less than the daydream value they wanted.

So why does this happen? Why does the pawn shop generally win the daily battle with sellers?

Several reasons stand out.

First, as the cast routinely explains, they’re not collectors or hobbyists. Instead they’re folks who buy wholesale and sell retail. They’re in business, they trade every day and they’re good at what they do.

Pawn shops have cash, a very useful commodity. So, by definition, a pawn shop is a buyer’s market. The assumption is that if sellers could do better elsewhere, they would

Second, the difference between wholesale and retail is not profit. It’s something less. Sometimes a lot less.

Imagine that a photo from the Civil War has a retail value of $200 and the Harrisons offer $100. At first paying “half price” may seem like a form of, er, plundering, but that’s not the case. The $100 offer may well be a very realistic price — and even a risky one. Here’s why:

  • For the shop to make a profit it must have a buyer and not every item is fascinating, collectible or valuable.
  • The buyer has to see the item, which means it has to be displayed or cataloged. Now, suddenly, we have the cost of rent, electricity, advertising and staff. There are costs for insurance, CPAs, security guards and other expenses.
  • The money paid for the photo is not free. The decision to purchase the photo represents an opportunity cost — the money could also have been placed in a CD to earn a sure rate of interest. An item that doesn’t quickly sell isn’t making money, it’s eating money.

Part of the shop’s risk, of course, is that an item may not sell for a good mark-up or worse it may never sell. That’s just part of the business. In the worst case the item will be stolen or a fraud, meaning a total loss.

Pawn shops, historically, have offered consumers the choice of selling an item or pawning — giving it to the pawn shop in exchange for cash and the right of redemption for a given period. The effective interest rate for such transactions is “high” but then compare the cost of using a pawn shop with the expense of a credit card and maybe the expense is not so unreasonable. (Remember also that banks as this is written can borrow from other banks overnight at near 0 percent.)

Moreover, with a pawn shop every transaction is a nonrecourse deal, there are no bill collectors in the picture or credit dings.

Third, to be an equal in the marketplace you need to be prepared. Check eBay or Google to find recent sales of like or similar items before trying to bargain. Know about the history of the item, what makes it valuable, the finer points. See if there is some group or seller that specializes in such items. Maybe you can do better online or in another setting.

Fourth, as Rick says, when you sell something in a pawn shop you have to be prepared to bargain. Thus if you want $100 don’t ask for $100 — ask for $120. This gives you room to haggle, a part of the process the Harrisons seem to like, but only when the bargaining is within the realm of reality. And who knows, you may get the higher price — but only if you bargain.

Notice that Rick and the other staffers do the exact same thing — in reverse. They have an opening bid but in many cases are willing to go higher.

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