"The image pawnshops have really hurts when it comes to drawing people into the stores to buy something," said Kris Kirsch, a manager at Bidz.com, the online outlet for a group of pawnshops. "That is why all our merchandise collected dust at first, and that is why we had to find a new avenue to liquidate our inventory."
Nearly 14,000 pawnshops across the United States basically provide small, short-term loans taking merchandise such as jewelry or electronic goods as collateral. The interest rates on the loans tend to be extremely high--anywhere from 10 percent to 30 percent per month.
If someone is unable to pay back the loan, usually within a three- to four-month period, the pawnbroker assumes ownership of the collateral. Although more than 70 percent of the items that are pawned are paid off by the borrower, according to the National Pawnbrokers Association, pawnbrokers may be sitting on tens of millions of items such as cameras, diamond rings, paintings and musical instruments.
Pawnbrokers take great pains to downplay what they see as a "Hollywood" image forced upon them by the media, as in movies such as "The Pawnbroker" and "Trading Places."
"The reality is that every pawnshop is licensed by the state or local municipality with a limited number of licenses awarded," said Neil McElwee, chief executive of Pawnbroker.com. "There is no reason to accept stolen goods; every item that comes in to a pawnshop has to be registered with a data list going to the local police."
Consumer perception, however, will still make or break this new online industry, analysts said.
"The biggest challenge they are going to face is building a trustworthy brand," said Michael May, an analyst at Jupiter Communications. "It's hard enough to be an online retailer, but to deliberately align yourself with pawnbrokers is not going to inspire a lot of consumer confidence."
Patrick Vaughn, president of MoonBuzz.com, a pawn site that will launch this summer, plans to downplay his company's relations with pawnbrokers for that very reason.
"We certainly have nothing to hide, but we are not necessarily pitching our merchandise as coming from pawnshops," Vaughn said. "We are basically pitching high-quality, high-value, pre-owned goods in a convenient online environment."
Pawnbrokers are already cutting deals at many of the leading online consumer-to-consumer sites, including eBay, Yahoo and Amazon auctions, and swap sites.
But pawnbrokers said those venues tend to be for lower-ticket items, while pawnshops try to sell more expensive goods, such as Rolex watches and fine jewelry.
Pawnbroker.com's McElwee said he is more likely to see category retailers like Blue Nile, an online fine jewelry merchant, as his competition. Others said their unique merchandise tends to get buried in the pages after pages of items listed on sites such as eBay.
"eBay has such a huge real estate that our unique inventory suffers, because by the time shoppers even see our stuff, they are worn out just by clicking around," Bidz.com's Kirsch said.
The online pawn sites charge the physical shops between 5 percent and 10 percent in commissions for goods actually sold. Some also charge a monthly listing fee.
Many pawnbrokers are well equipped with computers helping to ease their transition to the Net. Brokers around the country still have to email or upload listings and photographs of goods to take advantage of online pawn networks.
"Pawnbrokers are a stingy lot; many are using defaulted computers right off their shelves," McElwee said. He added that his company, already publicly traded on the Over-the-Counter market, plans to offer specialized software through application service providers to pawnbrokers.
Charlene Komar Storey, the editor in chief of Today's Pawnbroker, noted that the technology barrier for pawnbrokers may be much lower than for many other small retailers. For years, she said, pawnshops have been using a software called Polygon to connect to one another's databases and to download their most recent loans to the local police.
"I think to a great extent the success or failure of pawnbrokers online will depend on how they will be able to address their image in their advertising," Komar Storey said. "We just have to wait and see."