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Your Loss is Our Gain: Pawn Shops Thrive in Recession

Business

Unemployment numbers are high, gas prices are up and everyone feels strapped for cash. However, despite the recession, there are some corners of the market that are doing well.

According to the Associated Press:

"Profits at pawn shop operator Ezcorp Inc. have risen by an average 46 percent annually for five years. The stock has doubled from a year ago, to about $38. Several market analysts predict that it will continue to grow at a rapid pace."

Why?

Simple: with the jobless rate hitting 9.2 percent, the unemployed are broke and desperate. They are willing to seek help from cash advance stores, thrift stores and they will lease instead of purchasing.

According to The Associated Press, stock in payday lender Advance America Cash Advance Centers has doubled from a year ago, to just under $8. Their rival, Cash America International Inc., is also having a good year. Their stock rose by 64 percent, to $58.

Encore Capital Group, a debt collector that deals with people with unpaid credit cards bills and other debts, rose nearly 50 percent last year.

Additionally, Stock in Rent-A-Center, which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32.

Although it may seem vulgar for a business to prosper from desperation, it is nevertheless a lucrative market. But they should be careful; their prosperity may be short-lived.

Connsumer spending, adjusted for inflation, has fallen for two months in a row — the first back-to-back fall since November 2009. On Friday, the government reported the unemployment rate rose to 9.2 percent in June, sending stocks into a tailspin. On top of that, one in seven Americans now live below the poverty line, a 17-year high.

Pawn shops, thrift stores and leasing centers have constructed a business model that capitalizes from unprofitable times. But they have to recognize that they are working with limited resources. If things continue the way are now, there will come a time when the desperate have nothing left to pawn and will instead have to choose between leasing a couch or buying groceries.

(The Associated Press contributed to this report)

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