The service based economic cycle continues..

In U.S., the new frugality has unintended consequences

http://www.iht.com/articles/2009/01/16/business/services.4-409604.php

By Catherine Rampell
Saturday, January 17, 2009
NEW YORK: A few months ago, as her family's income fell, Laura French Spada, a real estate agent in Glen Rock, New Jersey, began dyeing her own hair and washing the family cars herself. Her husband, Mark, started learning how to do his own electrical repairs.

Susan Todoroff, a personal trainer in Ann Arbor, Michigan, has begun brewing her own espressos, cutting her own hair and cleaning her own house. And Tamar Zaidenweber, a health care market researcher in New York, is spending more time walking her dog instead of taking it to day care each week.

All of these consumers could praise themselves for their newfound frugality in the midst of an economic downturn. But every step they take toward self-reliance - each shrub they prune themselves, each cupcake they bake from scratch - hurts the individuals and small businesses that have long provided these services.

These businesses are run in storefronts on urban streets and in suburban strip malls, or sometimes just out of pickup trucks. Responsible for roughly 18 million jobs in the United States, according to 2006 Census Bureau data, they have long been seen as engines of the country's economic growth. Yet after years of explosive expansion, beauty salons, dry cleaners, landscapers and restaurants around the United States saw sales slow or even decline in the final months of 2008.

Their services are suddenly, and painfully, being perceived as nonessential.

The question now for these businesses is whether dwindling demand for those services will steady or, eventually, lead them to shutter. And the question now for individuals is whether their new mood of self-reliance is temporary or permanent.

As family incomes rose over the past 50 years, more and more members of the middle class could afford to outsource their household chores. No longer was it just the very rich who had "servants," said Jan de Vries, an economic historian at the University of California at Berkeley. "Household members, particularly women, have been working more in the market," said de Vries, who wrote "Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present" (Cambridge University Press, 2008). "They have had less time and higher money income, and they have been spending a lot of that money income on services they once provided themselves."

Still, he noted, even before the U.S. recession began, some families had already begun to cite moral reasons for reverting to domestic self-sufficiency, to those good old days when families grew their own food and burped their own babies.

"Families have been creating a discussion over the past decade about value-driven concerns that are now being reinforced by forces in the economy," he said. As a result of this confluence of moral and financial incentives, "The way households function 20 years from now will probably be sort of surprising to us."

After decades of spendthrift subcontracting, many consumers now say they view such specialist services as indulgences rather than necessities.

"A lot of the way we'd been living was all an illusion, a fantasy," said Spada, who in recent months has also been cooking more and bathing the family dog instead of going to the groomer's. "We've been asking ourselves: 'Can we replicate some of those specialized services, which normally we would outsource, ourselves?"'

Even as Americans cut back on restaurant dining, pet care services, house cleaners and landscapers, companies producing some of the do-it-yourself products are seeing higher sales.

According to Information Resources, a market research firm in Chicago, sales of products used in home manicures, home cooking and home medical treatments, among others, have had healthy growth in the past year. Meanwhile, according to Sageworks, a company that tracks sales at privately held businesses, revenues at physicians' offices slipped 0.06 percent.

"They're reducing doctor visits, and trying to treat themselves at home," said Thom Blischok, president of global innovation and consulting at Information Resources.

Big-box stores that sell these products have been capitalizing on the return to a self-service mentality. Target, for example, recently rolled out a marketing campaign that glorifies the family-friendly, do-it-yourself alternatives to activities that households used to outsource. The ads show dismal economic headlines, followed by scenes of a father buzzing the hair of his smiling sons ("the new barber shop") and a child eagerly eyeing his mother's cookie-filled oven ("the new bakery").

At the same time, the service providers have been hurting.

Since the market collapse and huge government rescues were being debated, in September, "it was like someone turned the switch off for nanny demand," said Steve Lampert, the president of eNannySource.com, a national nanny placement company based in West Hills, California. Family subscriptions to eNannySource.com are down to 150,000, about a third of the site's peak in 2007, he said.

James Erath, owner of Puppy Love & Kitty Kat in New York, said, "Business is definitely down, about 25 or 50 percent down." The company has been offering steep discounts on grooming to attract customers who might otherwise bathe their own pets.

Rhonda Coop-Piraino, a hair stylist in Dallas, said about 10 percent of her clients had started coloring their hair at home to save money. Many of these same clients, she said, return to her salon for color correction when their home kits disappoint.

"They do come in sometimes with some pretty orange hair," she said. But she finds herself giving them a discount to fix it: "I have clients who have been with me for so many years, and it's hard for me to charge them $200 in this economy."

There are some services that consumers now have trouble duplicating themselves because of technological advances. When it comes to cars, for example, consumers might be able to refresh their memories about how to change a car's oil - and some mechanics report a rise in such self-service. But beyond oil changes, there is little most car owners can do themselves because automobiles have become so sophisticated.

Aaron Clements, the owner of C & C Automotive and the host of a car-repair radio show in Augusta, Georgia, said that in recent months twice as many customers had been calling and asking for advice on how to service their cars themselves. But usually, once they learn what equipment, training and effort would be necessary for self service, he said, they opt to bring the car in anyway.

"Two cars ago, I was able to rebuild the entire engine," said Vicki Robin, the co-author of "Your Money or Your Life," a book evangelizing the financial virtues of self-service. "But back then a car was a car. Now a car is a computer with wheels."

As their former nannies, stylists, landscapers, dry cleaners and maids languish, consumers report mixed feelings. They say they sometimes feel guilty about the ripple effects their penny-pinching is having on the livelihoods of others, but at the same time unexpectedly empowered by their rediscovered self-reliance.

Many say that even when their financial worries abate, they will probably remain self-service converts.

"It's actually been surprisingly gratifying," said Todoroff, who recently halved her maid's visits to just once a month. "When you clean your own house, you know where things are," she said. "It's kind of nice."
END OF ARTICLE

Boy, the last paragraph really sums it up for me...