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About this report
This market includes traditional pawnbrokers, stores which focus primarily on trading of second-hand goods – in particular jewellery and consumer electronics – and those whose main focus is high-interest lending such as payday loans, term loans and cheque cashing.
There is significant overlap between these activities with most leading operators now carrying out a mix of each.
We quantify the market size, historical growth rates, segmentation patterns and levels of industry profitability while reviewing key factors behind these figures.
The report builds on the version which we produced in 2012 but has been comprehensively updated, extended and re-written.
What are the objectives of this market report?
Pawnbrokers, second hand stores and high street payday lenders have grown at rapid rates over the last few years.
The industry is frequently in the news but is not well understood.
- Lenders are often criticised for charging high rates of interest which exploit low-income consumers.
- They are also frequently praised for offering credit to those who cannot obtain it from mainstream sources and giving them an alternative to illegal loan sharks.
This report aims to probe beneath these two statements, explore the factors behind the high rates of growth and provide a view on how likely it is to continue in the future.
Other questions the report considers include:
- Was pawnbroking driven by a gold bubble or is there underlying growth in the market?
- How does industry revenue segment between different service lines such as pawnbroking, payday / term lending, gold buying and retail? How do we expect it to change in the future?
- Is ‘posh pawn’ now an important area?
- Does comparison with the US market suggest potential for further growth?
- Should Albemarle & Bond have been able to anticipate a slowing in the market?
Who is it useful for?
Operators of pawnbroking and retail payday loan stores
Investors in these businesses
Potential new entrants to the market
Market regulators and policymakers
Banks, analysts, consultants and other parties with interests in the sector.
What are the sources and methodology?
This report is based on:
- Interviews with senior-level contacts in the pawnbroking market
- Extensive research into published industry sources
- In-depth analysis of the macroeconomic environment and relevant pawnbroking market drivers
- Financial analysis of the accounts of companies in the industry.
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions.
We also carry out an in-depth analysis of the relevant drivers of industry growth – including the macroeconomic environment, impact of the gold price and changes in the regulatory framework – setting out historical trends and available forecasts. Our forecast for industry growth is based on this analysis of historical trends and growth drivers.
The market consists of high-street shops which offer combinations of pawnbroking and other lending services such as payday and term loans, purchase of second-hand goods including gold jewellery, electronics and other items. Most of the main chains have their roots in one area but there has been convergence with most now offering a mix of these services Pawn loans are typically for up to two-thirds of the value of a pledged item.
- The principal plus fees and interest is repayable on or before the end of the agreement, usually six months later.
- If the loan is not repaid, the item is forfeit and will be sold to repay the loan.
- Around 30% of pledges are not redeemed While press reports often focus on ‘posh pawn’ involving middle class customers with assets but not cash, interviews suggest it is a small part of the market and research shows that most loans are for either day-to-day spending or household bills. Loan costs are c.120% APR. This is more expensive than conventional credit but cheaper than other forms of high cost credit such as payday loans or doorstep lending. Store location is very important as most people do not travel far to visit a pawnbroker.
Market growth and drivers
The market has grown rapidly in recent years and there are now well over 2000 pawnbrokers and loan store outlets in the UK. Market growth was driven by
- A significant increase in the number of customers in the sub-prime segments as a result of the economic downturn
- Significant reduction in the appetite of the mainstream banks for serving such customers
- A sustained rise in the gold price in the decade leading up to 2011-12
- The more favourable regulatory environment for high-cost credit providers in the UK than elsewhere in Western Europe and North America
- The increase in the supply of suitable sites resulting from the decline of the high street as a mainstream shopping destination.
The market has become relatively concentrated as a result of seven large chains having rolled out their store networks in recent years. The following are the main companies in the sector.
- CNG Holdings, which operates both the Cheque Centres and Cash Generator high street chains as well as The Loan Store payday loans website, and which has recently announced the closure of some loss-making stores.
o Dollar Financial, which is based in the US, where it operates pawnbroking and lending stores, but now has half of its revenue from its UK operations, which are The Money Shop chain and the Payday UK and Payday Express loan brands.
- Cash Converters, an international pawnbroking franchise which started in Australia and moved to the UK in 1992.
- Albemarle and Bond which is listed on AIM and operates a nationwide chain of pawnbroking stores
- H&T, which is also listed on AIM and has a similar sized network
- Ramsdens, the third-largest of the traditional pawnbroking chains, which is privately owned and has expanded both within and outside its base in the North-East
In the last year, the reversal in the gold price has led to a significant reduction in the levels of gold buying. Most analysts expect the price to fall further in 2014, and our forecast assumes that gold buying decreases further as a result
The main driver of market growth is now payday lending with most of the leading chains increasing their focus on it. However, there is potential regulatory risk, both from the incoming FCA, which has promised firmer regulation of the area, and the Competition Commission, which is also currently reviewing it. Traditional pawnbroking appears set to continue to grow at a steady rate, with less regulatory risk. We expect the market to continue to grow but at a more modest rate than in the past.
Pawnbrokers & Payday Loan Stores summary – 7
• Market background
• Market growth and drivers
• Competitive landscape
Pawnbrokers & Payday Loan Stores market overview – 9
• Adjacent markets: online alternatives to these services
• Purchase / sale of second hand items.
• Other services
• Customer needs and implications for pawnbrokers & payday loan stores
• Research into customer needs
• “Posh Pawn”
• Internet pawnbroking
• Value drivers for pawnbrokers & payday loan stores
• Borrowing costs
Pawnbrokers & Payday Loan Stores market size and growth – 16
• Number of stores
• Use of franchised stores
• Revenue per store
• US market and betting shops comparisons
• Tax treatment
• More new entrants and niche focus
Pawnbrokers & Payday Loan Stores market drivers – 21
• Discussion of key drivers
• Growth in target consumer segment
• Availability of other forms of credit
• Gold price
• Macroeconomic trends
• Unemployed and under-employed
• Wage levels and household disposable income
• Personal insolvencies
• Student debt
• Access to mainstream banks and credit sources
• International comparisons
• Consumer credit
• Credit cards
• Gold market trends
Competitive landscape – 32
• Store and employee productivity
Pawnbroker & Payday Loan Store chain profiles – 36
• Instant Cash Loans / The Money Shop (Dollar Financial Corporation)
• Cash Generator
• Cheque Centres
• H & T Group Plc.
• Albemarle and Bond
• Cash Converters
• Ramsdens Financial
Market Forecasts – 51
• Household disposable income
• Gold price
• Store numbers
• Service mix trends
• Market forecast
• Risks to the forecast
Appendix – 56
List of figures (Pawnbrokers & Payday Loan Stores market report)
1. How consumers used their most recent loans
2. Reason for using a particular pawnbroker / %
3. Five most common reasons for taking out a loan
4. Reasons for taking out agreement
5. High cost credit types APR / %
6. Total amounts paid including principal / £
7. Historical UK pawnbroking / loan store market size / £m
8. Historical numbers of pawnbroker and money shop stores
9. Pawnbrokers’ franchised store numbers, franchised stores as % of total stores
10. Revenue per store / £m
11. H & T average pawn loan / £
12. UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP / % annual changes
13. Historical number of unemployed and underemployed / m
14. Number of people in employment / m
15. UK average wages and real household disposable income annual growth rates / % annual change
16. Historical number of new debt solutions per year / ’000
17. Historical UK number of bank branches
18. European countries number of bank branches per million people in 2011
19. European countries bank branches CAGR (1999-2011) / %
20. Number of adults without a bank account/cannot access credit
21. UK outstanding consumer credit / £m
22. Number of credit cards in issue / m, end of year
23. Percentage of gross lending not repaid / %, year average
24. Historical gold price / £ per ounce
25. UK and Ireland gold scrappage and consumption / tonnes
26. H & T Gold purchase margin / %
27. Leading UK pawnbrokers market share by number of stores and latest revenues / £m
28. Revenue growth rates of leading pawnbrokers – CAGR %
29. Comparison of leading chains
30. Historical segmentation of pawnbrokers’ gross profit / %
31. Latest pre-tax profit margins of pawnbroking chains / %
32. Leading pawnbrokers’ latest revenues per store / £m
33. Revenue per employee / ‘000
34. Instant Cash Loans Ltd. summary financials
35. DFC Global revenue segmentation, 2009-13 / %
36. Cash Generator Ltd. summary financials
37. Cash Generator revenue segmentation, 2011-12, Q3 2013 / %
38. Cheque Centres Group Ltd. summary financials
39. Cheque Centres revenue segmentation, 2010-12, Q3 2013 / %
40. H & T Group Plc. summary financials
41. H & T gross profit segmentation, 2010-12, Q3 2013 / %
42. Albemarle & Bond Holdings Plc summary financials
43. A & B gross profit segmentation, 2010-12, Q3 2013 / %
44. Cash converters (UK) holdings Plc. summary financials
45. Ramsdens Financial Limited. summary financials
46. Ramsdens revenue by segment 2010-13 / £m
47. Borro Limited summary financials
48. Oakam Ltd summary financials
49. UK nominal GDP, inflation (GDP deflator) and real GDP / % annual changes
50. Unemployment and underemployment / m
51. Number of people in employment / m
52. UK real household disposable and average income / % annual change
53. Gold price forecast / £/oz
54. Pawnbroking – Forecast market size / £m
Companies mentioned in the report
Instant Cash Loans
The Money Shop
Dollar Financial Corporation
H & T Group
Albemarle and Bond
SRC Transatlantic Limited
+44 20 7100 7239
Pawnbrokers & Payday Loan Stores: UK market profile and forecast 2013