First Cash Financial Services (NASDAQ: FCFS) operates retail-based pawn and consumer finance stores in the US and Mexico. As of February 2011, the company has over 620 locations across nine US states and 21 states in Mexico.[1] The company makes money through its pawn stores in which it purchases second hand goods and provides consumer finance activities. By giving small consumer loans to help customers meet short-term cash needs, First Cash hold jewelry, consumer electronics, tools, sporting goods and musical instruments as collateral. When a consumer defaults on his or her loan, the pawn store then makes significant retail sales.

Business Growth

First Cash's revenues are split equally between the US and Mexico, with about 52% of revenues in Mexico. The management believes the US pawnshop industry remains highly fragmented, with three major publicly traded pawnshop companies, including First Cash, currently operating approximately 1,200 of an estimated 12,000 to 15,000 total pawnshops in the US.[2] In Mexico, however, the pawnshop industry is less developed with approximately 5,000 nationwide. The company operates mostly large, full-service stores in Mexico as most pawnshops in Mexico are smaller shops that make loans collateralize by gold jewelry. In this regard, business growth will most likely come from increasing consolidation in the US, as well as rapid expansion in Mexico.

Trends and Forces

First Cash's Business is Counter Cyclical

When credit crunches occur, individuals with low credit are often negatively affected and find themselves unable to attain proper ways of financing through traditional methods such as a bank. As a result, pawnshops are attractive because the consumer may convert illiquid items such as musical instruments for temporary liquidity in cash. By being able to tap into temporary financing, these individuals can cover their necessary expenses in due time. From the business end, a pawnshop is profitable because the value of the collateral is often much more than the liquidity provided up front. A pawnshop that is particularly skilled at locating merchandise of high value may reap very large profits when the consumer defaults.[3]

Illiquid Items are Hard to Valuate

While certain illiquid items such as art or musical instruments may be extremely valuable, the company may be unable to find a suitable buyer due to its highly illiquid nature. As a result, even if the pawnshop gets a great deal from the default, the company may not be able to realize the profits until may years later when the particular market recovers. Furthermore, if the pawnshop is not particularly apt at valuing illiquid items such as art, the deal may turn sour when the company wants to sell the item. Also, because the items are often not identical, special attention must be paid to each piece of collateral and as such is harder to implement economies of scale.


  • Cash Converters (ASX:CCV) franchises second-hand goods and financial services stores. It also provides secured and unsecured loans, and operates a number of corporate stores, trading under the Cash Converters name.
  • Bookoff (TYO:3313) is a Japan-based company which operates secondhand shops and the franchise business.
  • Cash America International (CSH) provides specialty financial services to individuals through retail services locations and through electronic distribution platforms known as e-commerce activities. These services include secured non-recourse loans, commonly referred to as pawn loans and unsecured consumer loans.


  1. FCFS Form 10-K FY2010, Pg 8
  2. FCFS Form 10-K FY2010, Pg 10
  3. First Cash Beats with Pawn Growth
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