1600 W. Seventh Street
To become a preeminent worldwide provider of specialty financial services to non-traditional borrowers.
Cash America International, Inc. is the world's largest and only international pawn company. In addition to providing secured non-recourse loans (pawn loans) to individuals, the company provides check cashing services through its Mr. Payroll Corp. subsidiary and buyer financing arrangements through its affiliate, Express Rent-a-Tire, Ltd. As of June 1997, the company had 392 locations in the United States, Great Britain, and Sweden.
Getting Started, 1983-89
Jack Daugherty, the chairman and CEO of Cash America, opened his first pawnshop, in Texas, in the early 1970s and was so successful he moved into the oil business. When that industry went bust, he returned to pawnshops, founding the company in 1983, and incorporating it the following year as Cash America Investments, Inc. Daugherty took the company public in 1987, making it the first pawnshop company to be publicly owned. The initial offering raised $14.5 million, with 5 million shares sold. Using the money to expand, Cash America acquired the Big State chain of 47 pawnshops later that year. The company continued to grow, primarily through acquisitions. In 1988, five years after its founding, the chain opened its 100th location.
The stores in the Cash America chain did not fit the dark, dingy image of a storefront pawnshop. Daugherty's strategy was to provide big, well-lit stores, to computerize the inventory and to centralize management. The company established a three-month training program for new employees that included classroom and on-the-job training in loans, layaways, merchandise, and general administration of store operations. More experienced workers received training in the fundamentals of management and managers went through a year-long program that dealt with recruitment, merchandise control, income maximization, and cost efficiency. Each store had a unit manager who reported to a market manager responsible for about ten locations. The market manager in turn reported to a division vice president.
"Cash America is bringing modern management to a backward industry," Prudential analyst John D. Morris told Ellen Stark of the Wall Street Journal. And investors, including some of the nation's largest banks according to Michael Hudson of The Nation, appeared to like it. In 1988, the company sold an additional 4.92 million shares, raising $24 million to finance its expansion.
Cash America used the term "non-traditional borrowers," to refer to its customers. These were people not willing or unable to use a credit card or get a bank loan to cover the cost of repairing their car, paying a utility bill or other short-term need for cash. Many did not have a checking account and usually conducted their business on a cash basis.
Customers brought in items of personal value--wedding rings, silver tea sets, televisions, firearms, bicycles, radar detectors, weed wackers&mdashø use as collateral for an immediate loan of money. Using sources such as catalogues, blue books, newspapers, previous similar pawn loan transactions, and his or her own experience, the Cash America employee determined the estimated value of the item and the amount to be financed.
The Cash America customer received a computerized pawn ticket that gave a detailed description of the collateral, amount loaned, and identifying information about the customer (address, age, driver's license number). The average Cash America loan was for under $100 and was outstanding for less than two months. The customer redeemed the item by paying the loan amount and service charge. About 70 percent of the company's loans were repaid. For those that were not, the collateral became the property of Cash America and could be sold.
The company's gross revenue was calculated by adding the amount received from the sales of unredeemed items plus the amount earned from service charges. Sales were generally around 70 percent of the gross revenue. But when the cost of the sales was subtracted, service charges accounted for at least half the net revenue each year.
The pawnshop industry has long been an extensively regulated activity. States determined the process to be followed in applying for a pawnshop license, what records had to be maintained and whether the local police could inspect them or whether transactions had to be reported to local law enforcement officials, how old a customer must be to be served, and what hours the business could be open. States also established the range of loan amounts and the maximum annual service charge for each range. In Texas, for example, in 1997, the most a pawnshop could charge was 240 percent per annum, and that only for loans of $1--$132. No pawn loan could be more than $11,000, for which the maximum annual rate was 12 percent. Oklahoma also had 240 percent as the maximum annual rate, but for loans of $1 to $150. Loans in that state could not exceed $25,000, with a maximum annual rate for that amount of 36 percent. Other states, including Florida and Georgia, allowed a maximum of 25 percent of the loan for each 30-day period of the transaction, with no breakdown by loan amount.
Growing Fast, 1990-95
By 1990, Cash America was operating 123 company-owned locations. That year the company was listed on the New York Stock Exchange and the stock split 3 for 2. In 1992, a 4.6 million stock offering raised $45 million, the stock split 2 for 1, and the company opened its 200th store, in Mission, Texas. It was at this point that Daugherty decided to take his company international. He acquired Harvey & Thompson, a U.K. chain with over 100 years in the pawnshop business. Harvey & Thompson was based in London and had 26 locations in England and Scotland. The pawnshop business in the United Kingdom was essentially the same as that in the United States. However, pawn loans generally were secured only by jewelry and gold or silver items and the average loan was larger, approximately $120. Additionally, for loans larger than about $40, unredeemed items were sold at auction. Finally, the Consumer Credit Act of 1974 prohibited pawnbrokers from entering into "extortionate credit bargains" with customers and Cash America charged a rate of around 6 percent per month.
The company continued to expand in the United States as well, opening more stores, buying the 18-store Express Cash chain and entering Alabama and Missouri in 1993. At the end of the year the chain operated 280 locations. In 1994, Cash America opened its 300th store and had over 1,800 employees. That same year it bought shares in Mr. Payroll, a check cashing franchise operation and also acquired the 10-store Svensk Paantelåning, one of the oldest operating pawnshop chains in Sweden. As in the United Kingdom, the pawnshops in Sweden handled primarily jewelry and precious metals, catering to a more affluent customer. Under a new pawnbroking act passed in 1996, loan terms were not to exceed one year, but the act set no maximum interest rates for pawn loans and did not authorize local boards to regulate those rates as the statute had in the past. Also as with Harvey & Thompson, unredeemed merchandise was sold at public auction, although pawnbrokers could sell items they purchased at auction to the public from their pawnshop. The average loan amount in Sweden was approximately $300. In both Sweden and the United Kingdom, loans generally were outstanding for 180 days or less and forfeiture rates were one-third less than in the United States. At the end of 1994, the company had gross revenues of $221.9 million and $15 million in net profits.
During 1995, the company faced increased competition in the United States. Several companies, including EZ Corp. Inc. with 240 locations, and First Cash, Inc. with 50 operating units, completed initial public offerings and announced plans to expand through new locations and acquisitions. A number of smaller companies also entered the market.
The competition affected the company's Cash America VIP program which offered discounts on unredeemed merchandise to frequent shoppers in an effort to attract bargain shoppers. Cash America turned to its proprietary loan and inventory tracking system to analyze the problems. The system linked all its U.S. stores to coordinate and manage thousands of loans and over a million different items of inventory. Using information from that system, Daugherty found that inventory was too high, that unredeemed items were not being turned over quickly enough despite the discounts. He also decided that too much emphasis was being placed on retail to the detriment of the actual loan business.
1996 to the Present
The company established two goals for 1996: to reinforce U.S. operations on the importance of successful lending at the unit level and to sharpen the emphasis on cash-on-cash returns at every level of the organization, both domestic and foreign. Cash America also decided to slow its rate of growth, with a net gain of 9 units during the year, for a total of 382.
But the refocus did not stop Daugherty from moving into another alternative financial business. By December 1996, Cash America had purchased all the shares of Mr. Payroll, which then had about 160 locations in 21 states. Mr. Payroll was started by John Templer in 1988 as he lay in a hospital bed in High Plains, Texas, after battling Guillian-Barre, a rare neurological disease, for two years. Templer and his partner, Michael Stinson, began by cashing checks for nurses at the hospital, using an armored car. Running the armored car two days a week, they also cashed checks for workers at two nearby manufacturing plants.
Mr. Payroll expanded to Amarillo in 1989, putting check cashing booths in eight Toot'n Totum Food Stores. People kept calling Templer, wanting to open booths in other towns, and he decided to franchise the concept. By the time it became a wholly owned subsidiary of Cash America, national companies such as Texaco, Circle K, and Diamond-Shamrock wanted to be franchisees. In Shreveport, Louisiana, for example, Mr. Payroll built eight locations for Circle K. "They want it. It adds value to them. They take the cash out of the store and recycle it through checks they cash and the customers spend the money in the store. That's a big advantage to the stores," Templer explained to the Amarillo Business Journal.
The acquisition was also advantageous to Cash America in its efforts to serve the non-banking segment of the population and become, to quote the 1996 Annual Report, "a broader based, specialty financial services entity." Neither Mr. Payroll nor the company's affiliate, Express Rent-a-Tire, Ltd., contributed to earnings in 1996.
Cash America's income from its domestic operations increased in 1996 after dropping in 1995. Loan balances increased 23 percent while inventory levels dropped by 14 percent. The company ended the year with an all-time high average domestic loan balance of $190,000 per location and a year-end inventory level of $145,000 per location, the lowest in several years. Daugherty credited the company's ability to respond to a stronger than expected demand for loans, with the increase coming from more loans, not larger loans. This was evidence that the company was increasing its customer base and market penetration. For the first time in its history, Cash America had more than $100 million in outstanding loans.
In November, the company announced a "Dutch Auction" to buy back 4.5 million shares. Under that process, shareholders tendered shares at prices between $7.00 and $8.50 and Cash America then determined the single share price within that range that would allow it to purchase 4.5 million or fewer shares. In December the company purchased 4.5 million shares at $8.50 per share. In January 1997, the Board of Directors was authorized to repurchase up to one million shares on the open market. In May 1997, Cash America acquired Rothchilds Sales & Loans, the largest pawnshop chain in Utah with five locations in and around Salt Lake City. That same month, Mr. Payroll expected to have its first self-service check-cashing and automated teller machines up and running in three towns in Texas. With the TrueFace technology used in the machines, customers would be able to cash any check in less than a minute without showing any photo identification. Instead, the technology verified a customer's identity by recognizing the contour of his or her face.
The company's earnings continued to grow during 1997, with its loan balance standing at over $100 million and its inventory down 12 percent at the end of the first quarter. While law enforcement officers remained concerned about customers pawning stolen property, the company stated that stolen property accounted for less than one-half of 1 percent of property pawned with the chain.
In June, Daugherty announced a new franchise program. Under it, selected independent pawnshops would be franchised under the Cash America brand name starting later in 1997. "By joining forces with hundreds of other quality and service-minded pawnbrokers, we will be able to reach markets beyond those served by our existing and planned company-owned stores," COO Daniel Feehan explained.
According to Mike Rapoport, an analyst with Dabnehy/Resnick, in addition to Cash America's successful pawn business, the company was among the nation's largest gold producers. It sold gold melted down from unredeemed, unsold jewelry on the metals exchange as bullion. "This thing makes money," Rapoport told the Sun Sentinel.
Principal Subsidiaries: Mr. Payroll Corporation.
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