Property Grunt

Monday, January 12, 2009

Enter the MacGyver era

Soon everyone will be cutting costs with a Swiss Army Knife.

We are experiencing a massive cultural shift in our values. Consumption has now been replaced with the paradox of thrift as more people are cutting their costs and becoming frugal.

I know one person who has a trust fund, yet he buys his clothes at Walmart. A member of my family who proudly shops at Walmart told me a story where she saw a woman walking around in a Walmart carrying a Louis Vutton bag. What was hilarious was this woman was constantly looking around hoping no one would see her.

A lot of people are learning to make do with less than they used to, even those who do not need to. Even rich people in Manhattan are getting on the frugality bandwagon.

Concierges Get New Marching Orders

While residents may not come straight out and ask for reservations at a restaurant with less than ruinous prices, “they might say: ‘We want to go someplace simple,’ ” Mr. Fazio said. “It’s our job to understand that what’s being unspoken is: ‘We don’t necessarily want to drop $200 a person, so please find us that hidden gem of a place that we haven’t been to yet.’ ”

Heidi Horsley, who lives at the Element at 555 West 59th Street with her husband and two children, said, “We’re definitely much more careful on what we’re spending as far as going out to higher-end restaurants and even on how often we go out and where we sit when we go to the theater.”

Residents have also called upon concierge services to find other ways to help them live their lives more thriftily. Ms. Newman of Abigail Michaels said she recently researched corkage fees at upscale restaurants, because residents with wine collections wanted to take their own bottles instead of paying the hefty restaurant markups on wine. (The fees range from zilch to $80, with some restaurants prohibiting bottles that are on their wine lists.)

Ms. Newman said one of her concierges had also been asked to find a reliable shoe repair shop to handle 10 to 15 pairs of designer shoes at a time. “We never got that kind of volume before,” she said. “People used to buy shoes at that rate, not get them refurbished.”

Requests for personal shoppers have also changed. Instead of booking someone for a shopping trip to Bergdorf Goodman, Ms. Newman said, residents “are now shopping in their own closets, so they’re restructuring what they have — maybe taking shoulder pads out of the Guy Laroche suit or hemming that Armani skirt.”

I do not see this trend ending anytime soon even after the economy recovers for the simple reason that people will realize how much they are actually saving by engaging in this lifestyle.

The family member that frequents Walmart made an interesting discovery. A lot of the clothes she bought form Walmart were similar items to brand name retailers like Polo and Land’s end. In others words all these retailers get their inventory from the same place. The reason why their inventory is marked up higher is because of the brand. And even if they are posting lower sales, they are still making a profit because in a certain fashion, the clothing business is similar to Coca-Cola. It is pennies to manufacture.

However there are some people who are having trouble making certain adjustments.

Daddy’s Home, and a Bit Lost

How to spend is a continuing negotiation — one that sometimes devolves into heated discussions, outright arguments and bouts of sulking. Tracey is trying, often unsuccessfully, to spend less on clothing for herself and the children.

“Don’t make me look like a jerk,” she told a reporter, “but I cannot bring myself to buy my children’s clothes at Wal-Mart.”

“But do you have to buy them at Ralph Lauren?” Scott shot back.

The Berrys have been at this long enough to make light of the well-worn nature of their disagreement. “It goes like this,” Scott said. “ ‘How can you complain about me not earning an adequate income, when you can’t control your spending?’ ”
On cue, Tracey chimed in. “And I say, ‘How can you complain about my spending when you don’t have an adequate income?’ ”

Actually Scott can complain because he does have a point. The secret of being rich is very simple. It is not what you make it is what you keep. What she should be doing is aggressively looking on craigslist and ebay for bargains or her children. If she does not have time then her husband can handle those tasks because his plate is not exactly full.

I discussed this article with a family member and stated why don’t they just cut the following expenses in bold that are mentioned in the article?

Shortly after Scott lost his job, the couple replaced their full-time nanny with a more cost-effective au pair and began choosing long-weekend getaways instead of weeklong family vacations. Some expenses, though, haven’t changed: they still shell out for membership at a local country club (“the most modest one in town,” Tracey said); they rented a condo last summer on Block Island; and they continue to pay hundreds a month for soccer, skating, T-ball and karate lessons for the children. They afford these things by dipping into the savings Scott put away during the flush years.

The family member pointed out to me that if they were to cut those activities they would have to move. She stated that those parts of Connecticut like Greenwich, and Darien require a family to pony up the cash for certain activities for their children that includes the karate lessons, soccer, skating and even the country club. In the suburbs, no family is an island. If they want their children to develop properly they need to have their children involved in activities in order to for them to develop socially and to also network within their own peer group. School isn’t the only place they can do that. It also looks good on the college application if a child has focused on one activity since they were children since it shows consistency and commitment.

However this might not be good for the economy.

Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes

As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decades long buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."

U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years.
That has resulted in a rise in the personal saving rate, which the government calculates as the difference between earnings and expenditures. In recent years, as Americans spent more than they earned, the personal saving rate dipped below zero. Economists now expect the rate to rebound to 3% to 5%, or even higher, in 2009, among the sharpest reversals since World War II. Goldman Sachs last week predicted the 2009 saving rate could be as high as 6% to 10%.

As savings increase, economists say, spending is likely to contract further. They expect gross domestic product to decline at an annualized rate of at least 5% in the fourth quarter, the biggest drop in a quarter-century.
"The idea that the American family will quickly spend us out of this recession is a fantasy. It won't happen," said Elizabeth Warren, a professor of law at Harvard University who last month was named chair of the Congressional oversight panel tasked with overseeing the distribution of the government's Troubled Asset Relief Program funds.

The irony is that frugal behavior is actually hurting the economy because no one is spending any money, even when we win we lose. 2009 is going to suck ass.