Reggie Pendleton was laid off last week and needed money to buy his wife and two young children Christmas gifts. So he turned to an increasingly popular option in this deepening recession -- a pawnshop.
On Tuesday, the former technology firm recruiter walked into Collateral Lender Inc. in Beverly Hills clutching a stainless-steel Rolex he had bought in better times for $3,300.
After an inspection by one of the store's appraisers, Pendleton was offered a $400 loan. He can buy back the timepiece within 4 1/2 months at a monthly interest rate of 18%.
Pendleton, 43, was hoping for more money, but a holiday without presents was unthinkable. So the Culver City father took the cash and headed for the mall to buy toys and jewelry for his family. "This will be the toughest Christmas," he said.
People have long turned to pawnshops as a source of ready cash during the holidays. Patrons bring in items of value and exchange them for money.
In turn, the shops hold the items for a state-mandated period. During that period, customers can reclaim their items by paying back the loan plus interest. But after that, the lender is free to sell them and keep the profit.
This year business is up, an indication of how much tougher this season has become for some. Collateral Lender has seen a 20% surge in customers over the last three months or about the same period the stock market tanked.
Traditional lenders have seized up, and people of all walks of life are handing over their diamonds, purses and golf clubs to make their next mortgage payment or, in some cases, pay their employees for the holiday season, pawnshop workers say.
"This whole period now is nuts," said Tal Shmargal, owner of Collateral Lender. "We have people taking loans just to keep their business afloat."
It's a trend that's been reported nationally as the nation's economy continues its downward spiral.
Two of the nation's leading publicly traded pawn companies -- Ezcorp Inc. and First Cash Financial Services Inc. -- are among just a handful of stocks that have risen this year, up 31% and 20%, respectively.
"For a lot of people, we're the only source for money," said Dave Adelman, president of the National Pawnbrokers Assn. and owner of Jerry's Pawn Shop in Atlanta. "They can't go to a bank and get money because they won't lend. . . . Most definitely pawnshops are more busy. This time of year we're doing very well."
Such is the case at Collateral Lender, where a Christmas tree commanded center space on the shop's floor and Wham's "Last Christmas" was blaring from the radio speakers.
On the corner of Wilshire and Robertson boulevards next to a glossy BMW dealership, Shmargal's pawn brokerage is also a reminder of how hard times afflict the affluent.
Collateral Lender opened in Beverly Hills in 1990 around the time many pawnshops were shedding their age-old image of being dangerous haunts of last resort by instead focusing on the well-heeled.
Shmargal said many of his visitors appeared rich on paper but were cash poor in this economy. Those seeking loans include actors he cannot name who come and drop off their wares and stockbrokers in desperate need of paying off debts immediately.
"We don't ask their stories unless they volunteer," Shmargal, 52, said.
Collateral Lender might seem out of place down the street from Rodeo Drive. But inside, the bounty of pawned goods would leave a Neiman Marcus salesclerk breathless.
There are racks in the backroom filled with mink coats and Gucci and Louis Vuitton purses. A bright orange Hermes box conceals a $14,000 pink handbag.
Behind a thick metal vault are stacks of luxury watches in cushioned cases and rows of jewels stored in yellow envelopes. On one shelf is an Emmy statue.
"We even had an Oscar before," said Shmargal, who spends much of his day behind his marble desk taking calls, processing paperwork and monitoring images from his surveillance cameras.
To Shmargal, one sure sign of the financial malaise is the rate in which clients return for their goods.
Traditionally, 94% of his customers eventually buy back their pawned items. But in the last year, he's seen the rate dip to 85%. One of his backrooms has nearly run out of space for fur coats, guitars and bicycles.
In turn, Shmargal has to lower the price of his goods. He said he'd sell a Cannondale mountain bike by the store window ticketed at $899 to anyone who offered him $600. A group of conga drums tagged at $325 apiece could be had for $175 each.
"It's a scary cycle," Shmargal said. "It's scary for us too."
Not far away on Santa Monica Boulevard is Beverly Loan Co. -- a pawnshop the same way a Bugatti Veyron is a car.
The 70-year-old business, on the third floor of an office building that makes it look more like a doctor's office, was born out of the Great Depression and is experiencing growth with this recession.
"This is probably the closest thing we've seen to that time," said Chief Executive Jordan Tabach-Bank, whose grandfather, Louis Zimmelman, founded Beverly Loan. "Between the 1930s and today, we've experienced several cycles but nothing as dramatic as now."
By that, Tabach-Bank was referring to the number of white-collar clients who have been coming through his bulletproof-glass door and the percentage of customers who fail to reclaim their valuables, which has jumped from about 3% in more sturdy times to about 7% today.
This week, a business owner whose line of credit had been frozen by his bank needed to make his payroll and did so by pawning fine watches.
"Rolexes, Patek Philippe, Vacheron Constantin and Panerai," Tabach-Bank said. The loan was "over $100,000."
The company deals mostly in luxury timepieces and jewelry but there is also artwork by Marc Chagall, Andy Warhol and Salvador Dali. There are ivory horses in the main showroom pawned by an African princess, Tabach-Bank said.
In the last year, real estate brokers have been appearing more while waiting for escrow to close. One showed up with diamond studs.
"We get a lot of laid-off people," Tabach-Bank, 30, said. "Stock portfolios are at an all-time low. Ordinarily, they'd sell stock and do their Christmas shopping. Not now."