Maxi-Cash aims for customer retention, sustained growth amid pandemic
THE year 2020 was a surprisingly good one for pawnbroker Maxi-Cash Financial Services Corporation. Typically, an economic slowdown results in better business for pawnshops, as more people seek funds to tide over difficult times. But Ng Leok Cheng, chief executive of Maxi-Cash, says the Covid-19 pandemic has been a “very different and uncertain type of crisis”.
During FY2020 ended December, Maxi-Cash actually saw a decline in revenue from its pawnbroking and secured lending business segments. Revenue from pawnbroking declined 2.8 percent to S$42 million, from S$43.2 million in FY2019. The money lending segment logged revenue of S$2.9 million, down from S$7.9 million previously.
But the company more than made up for this with revenue growth from retail and trading of jewellery, as well as from branded merchandise. Revenue from this segment increased 30.3 percent to S$217.9 million, from S$167.3 million in FY2019.
This was despite the reduced number of operating days in the year, due to “circuit breaker” requirements. Maxi-Cash had to shut its stores from April 7 last year. Its pawnbroking stores were allowed to reopen progressively from April 12, while the retail stores could only open from June 19.
The strong performance is partly thanks to a positive environment for gold prices and partly due to increased spending among consumers.
With the pandemic halting travel and curbing social interactions, many people are now opting to spend their money on valuable items that either retain or appreciate in value. At Maxi-Cash, the average value of purchases has increased during the pandemic.
Good times may not last
Although business initially suffered due to a “high level of uncertainty”, Mr Ng said the government’s efforts to put money into the pockets of the “man on the street” helped boost consumer sentiment.
“We also benet indirectly because it means the pawners – people who pawn things with us – and people who buy things at our stores will have better means despite the difficult environment,” he said.
Mr Ng cautioned, however, that such good times might not last. Contrary to popular belief, he said, higher gold prices are not always a boon for pawnbrokers. And the “unique confluence of factors” that made conditions favourable for Maxi-Cash in 2020, might not continue this year.
“The basic rule is that every business will only grow in the long term if the economy is good, and pawnbroking is no different. There may be a small spike during difficult times because some people need the money (urgently), but this is not sustainable,” he said.
Ultimately, when macroeconomic uncertainties rise, people tend to cut back on expenses and businesses start to scale back on their investments. For instance, some small and medium-size companies may not even be operating during periods of lockdowns.
With a resurgence of Covid-19 cases of late in Singapore and the rest of the world, troubles for the industry are far from over. At the same time, Mr Ng is confident that Maxi-Cash has the necessary practices in place to weather the storm.
For instance, he said, the company has retained customers because of several “goodwill factors” that it extended during the circuit breaker.
These included waiving one month of pawning interest, which set the company back by “millions of dollars”, as well as extending pawn ticket and instalment periods.
Mr Ng estimates these “goodwill measures” amounted to roughly one month of the company’s interest income.
Maxi-Cash also tries to be transparent about loans and valuations. One of the problems with the pawnbroking industry is a “vicious cycle” of low loan-to-value ratios. Pawnbrokers might offer to loan an amount that is only a small percentage of the total value of an item, with high interest rates as well as other fees.
“The result of this is that the pawner will not be encouraged or motivated to come back to redeem the item, and it becomes a vicious cycle,” Mr Ng said.
Maxi-Cash is one of several local pawnbrokers that is aiming to create a more “virtuous” cycle in the industry. The company offers valuations based on market rates and also keeps interest rates competitive.
The pandemic has also emphasised the need for the business to remain agile.
Maxi-Cash is “constantly reviewing (its) network of stores”, even during the pandemic. The rm has not shuttered any of its stores during the Covid crisis, but has relocated one of its stores at Victoria Street and rented a third store in Lucky Plaza – one that faces the street.
“If we have a store that faces the road, perhaps the impact of another lockdown won’t be as great as if the stores are within the shopping centre,” Mr Ng said.
Maxi-Cash posted net profit of S$29.3 million in FY2020, up from S$14.8 million in the previous year. Revenue for the year rose 20 percent to S$262.8 million, from S$218.5 million in FY2019.
Dividends proposed and paid for the financial year stood at 2.6 Singapore cents per share, up from 1.35 Singapore cents per share in FY2019.
Asked if the company is likely to see a lift in financials again this year, Mr Ng cautioned that the last year was “not your normal year”. Nevertheless, he said any risks the business would face would be “manageable” unless gold prices totally collapse.
Unlike other businesses that face highly volatile demand, he said, the pawn and retail businesses are generally more stable because they are based on items that are of good value that people can easily monetise.
Keeping a close watch
Maxi-Cash is, however, keeping a close watch on the Covid-19 developments across the various countries it operates in. A huge spike in cases or renewed lockdowns could result in a “very big” adverse impact for the company as consumer sentiment takes a hit, Mr Ng said.
Currently, the group operates in Singapore, Malaysia, Hong Kong and Australia. With 47 stores, Singapore is the company’s largest market.
Said Mr Ng: “We started the year feeling very positive about 2021, but recently the confidence has been a bit shaken by the spike in local cases as well as other countries we operate in.
“This business requires confidence about the future, so that people will consume. When people consume, they buy things, trade in, or monetise the items to fund their lifestyles or businesses.”