- Company: Cash Converters
- Master franchisor: Richard Mukheibir
- Established in SA:1994
- Visit: www.cashconverters.co.za
When you think about Cash Converters, you primarily think ‘retailer of second-hand goods’. But dig a little below the surface and you find the brand’s philosophy is about giving a community access to cash.
Internationally, Cash Converters is primarily a pawnbroker for secured money lending, then a buyer and seller of second-hand goods. In South Africa there were no laws governing pawn-broking and everyone did what they wanted – it was the wild west out there.
So when we launched the franchise in 1994 we wanted to position the business in a new, credible light and build a brand where mainstream people could come shopping, which meant we had to take it out of the seedy pawnbroking industry,” says Richard Mukheibir, master franchisor and MD of Cash Converters.
Fortunately, the Cash Converter franchisors are an accommodating lot and accepted that a certain level of customisation was needed to make the brand work in South Africa.
“We went against the international trend of starting with pawnbroking and instead started with trading second-hand goods only. It was ten years before we moved into pawnbroking because by then we were first and foremost a second-hand goods retailer.”
“Whenever we bring a new product to the country, we go to the international network first to see what they’re doing and how it’s working. Looking to the primary income stream of international stores, in 2004 we began offering pawnbroking services and by 2007 the National Credit Act (NCA) allowed us to get more heavily into lending.
“The landing of the global recession in 2008 exacerbated banks’ lending reluctance and demonstrated our brand was ‘recession-proof’: We provide access to cash, and the more difficult it is to get bank loans, the more business we get.
Cash Converters offers a number of micro-lending products: Pawnbroking and payday advances (PDAs), which are reflected in the store-level model.
“We make lending small values of cash easy for customers which banks are reluctant to give because they’re so risk-averse. In-store, the average sale is R250, the average pawn is R500 and the average micro-loan is R1 200 over 30 days.
“And because our stores are franchisee owned and operated, the loan experience is face-to-face and franchisees are emperors of their own empire. They can give and decline loans in five to 15 minutes,” says Mukheibir.
“The PayDay Advance lending product was in the pipeline before the recession came along, so when we launched in 2009 the market was ready and in need of it.”
In fact, PDA took off at such a rate there wasn’t enough cash in-store to keep up with demand
“We partnered with FNB who had just launched their e-wallet to retain the convenience of cash loans for customers, but without the risk of actually carrying it. Now we load e-wallet debit cards which can be used just 15 minutes after the loan is granted. From there customers can use any POS around the country or draw money at the ATM,” Mukheibir explains.
“Even though we’re conservative with developing and implementing lending products, we’re always developing lending products to roll out across the network.” In fact, Cash Converters is soon to launch its 1 2 3 Loan, which is unsecured micro-lending of up to R2 000 and repayable over three months.
Explaining high growth
“When we opened the first store in 1994, we took two years to learn the complexities of the business before we felt ready to franchise. Our second franchisee was a pharmacist in Cape Town and the third franchisee was actually my sister and her husband.
“They borrowed R600 000 to fund the franchise, and it was paid off in two years. Their bank manager was so impressed he bought the fourth store!” Mukheibir laughs. “Word of mouth gets around.”
But from a brand performance perspective, Cash Converters has enjoyed 25% year-on-year growth when even very well-run brands like Massmart have only seen 3% to 5%. How?
“It’s founded on how much stock we have to sell, and we never have a challenge selling because it’s advantageous to the consumer to buy something that’s six months guaranteed and half the price they’d pay for it new.
“The economics of the time also encourages people to look for better quality and South Africans know value when they see it. Similarly, PDAs are up 30% because people need cash.
How do you turn ordinary Joe into a money lending franchisee?
“We’ve spent a lot of money upping our operational staff, which has doubled in 18 months, to support the franchise network. You also want to lend relative to the value of the asset, so we’ve also got sophisticated IT that shows a franchisee what price to pitch for products, as we sell thousands of items across the network weekly.
“Similarly, with unsecured micro-lending, our IT platform uses affordability assessments to determine how much an individual can afford to borrow. If you don’t provide the platform with the right information, you won’t make the loan.
“Australia ran this product for seven years before we launched it here, so it works incredibly well and we only have a bad debt ratio of 6%. The whole model is incredibly profitable.
Finding and keeping direction
Back in 1994, Mukheibir and business partner Peter Forshaw brought US brand PostNet to South Africa and purchased Multiserv when it was liquidated.
“We were looking to build a multi-brand holding company in the non-food industry, and our holding company, True North Holdings, loosely existed. We soon realised we were diffusing our senior management team too much and wanted to focus our resources on building Cash Converters for the next five years, so we sold Multiserv and PostNet.”
What they had left over was a 75-seater building in Midrand they owned but couldn’t fill. “We decided to let the offices to entrepreneurs needing one-seater office space. It generates additional income,” explains Mukheibir.
Come 2001, attention turned again to True North Holdings. “In the years after the sell-out, we were the first to introduce a multiple application device (MAD) which is a point of sale device like a bank terminal that sells things like pre-paid airtime and electricity. It taught us that tech could move money and information on a distributed basis economically.
“When Sport For All founders approached True North Holdings looking to partner and convert their NGO into a franchise in 2004, we bought their front end and partnered for just over five years, using MAD tech and smart cards to form part of their business model.
“However by 2008 we realised we didn’t have the capacity to do too much as building MADs consumed enormous amounts of money — a terminal cost R5 000 and it was a bit too ahead of the curve. So in 2010 Sport For All bought back their shares and focus fell back on Cash Converters where it’s been ever since.”
How Richard Mukheibir and Cash Converters met
“I come from generations of entrepreneurs;my grandfather came to South Africa in 1897 from Lebanon and despite being illiterate and arriving with very little, he bought a donkey in Durban harbour, settled in the Eastern Cape and set up a general dealer store which is still around today, 115 years later.
“When I was in the army I met my long-time friend and business partner, Peter Forshaw. When we later went to university – he to study accounting, me to study IT – he would always come to me with business opportunities.
“One day he asked if I wanted to be a pawnbroker and second-hand dealer. I laughed it off and said, ‘Yeah right!’ By then I’d been working in IT at Implats for about five years and knew I wanted to do my own thing. As my wife says, I take instruction poorly!” he laughs.
“So I looked into Cash Converters and it made a lot of sense – buying unwanted goods of ‘no’ value, not because it’s rubbish but because of upgrading, for example, and selling it to people who see value in it.
“We went to Perth, Australia to look at the ten-year old business with 50 stores and to meet the founders, and to go for it. My grandmother was horrified. My father was the first in the family to get tertiary education and here I was getting into pawnbroking,” Mukheibir laughs.
Launching and teething
“We saw a lot of advantage becoming master franchisors rather than starting our own brand. We knew nothing about retail and needed the best brand in its sector for the support and for reputation by association. The brand was already ten years old, and because there were no regulations for pawnbroking in SA, we needed a credible brand behind us.
“By this time it was 1994 and the whole country was changing. I resigned from Implats in February 1994, signed the franchisor agreement on 1 April, 27 days before the first democratic elections, and we opened the first Cash Converters store in Parow, Cape Town, after two months of training. That store is still there today – except 400m up the road,” Mukheibir smiles.
“Financing was as challenging then as it is now. We needed R1 million, half for the master franchisor fees, half to open our own store, and truth be told, I think we were lucky to have the right banker at the right time because I had no experience.
“We’re still with our bank 20 years later. Owning and running this first store, we learnt so much as franchisees and franchisors. Consequently we’re able to offer experienced support to our franchisees.”
Fancy yourself a franchisee?
“A franchise operation starts and ends with good quality people. The model is incredibly profitable, so lots of people are drawn to it, but it takes a special kind of individual with the right characteristics to become a Cash Converters franchisee. We only take on owner-operators and they need to have people skills, must enjoy helping people, have high energy and motivation — we can teach the selling part.
“They’ve also got to be a trader who enjoys buying, selling and spotting opportunities. Because franchisees source their own product to sell, they need common sense and savvy to pick the right stuff that other people will want to buy. People are bringing in beds, jewellery and gadgets every day which makes the business very dynamic and exciting, but it also makes finding the right people a challenge.”
- Initial franchise fee: R120 000
- Set-up costs: R1,8 million
- Working capital: R600 000 (included in above)
- Unencumbered capital: 50%
- Royalty: 4%
- Marketing fee: 3%
- Management fee: N/A
- Hot spots for development: GP, WC, KZN
- Contact: Richard Mukheibir or Neels Meiring on +27 (0)87 820 4060