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Archive for Sunday, June 28, 2009

Spas will signal when consumers are back

June 28, 2009

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— Dayne Morris eats out less, cooks at home more. He hunts for online bargains and shops at discount stores.

So when will he start spending freely again? “When I get a promotion,” says Morris, 24, a business consultant in Washington, D.C., “and the economy turns around.”

What used to be an afterthought, from ordering wine with dinner to jetting off on a resort vacation, still feels like a splurge. No one knows when consumers will feel financially secure enough to return to old spending patterns. But those whose livelihoods depend on it — shop owners, restaurant managers, hotel staff — will be among the first to see the shift.

Diners will order big pancake breakfasts again. Business suits will sell briskly. So will name-brand luggage, gym memberships and pricey jeans. Spas will sell more facials and massages.

Taken together, these seemingly minor transactions will likely help lift the country out of its longest recession since World War II. Consumer spending makes up about 70 percent of economic activity. But May data, released Friday, shows that a boost in income from the government’s stimulus program was devoted more to saving than to spending. Americans may be spending a bit more than they did at the end of last year — but it’s still far less than needed for a vigorous economic recovery.

When more of his cost-conscious patrons splurge on the Lumberjack Slam — a feast of pancakes, ham, bacon, sausage, eggs and hash browns — Denny’s CEO Nelson Marchioli will smile more.

“When the economy gets better, people will start buying the Lumberjack breakfast again and more appetizer samplers,” Marchioli says.

Some merchants who cater to higher-end customers say they already see signs of improvement. Helen Kim, director of operations for the upscale National Jean Co., which runs 12 boutiques nationwide, is one of them.

“Some are splurging,” Kim says. They’ll buy the third pair of jeans in a different color. They’ll get the second outfit now.” The average price of jeans in the store: $170.

Todd Walter, chief executive officer of Red Door Spa Holdings, knows what to look for: Customers splurging again on facials and massages, rather than sticking with “maintenance” services such as hair cuts, color and waxing.

He’ll also be watching for first-time customers, of whom there’s been a “fairly significant falloff” during the recession.

“As we start to see those numbers — first-time foot traffic — come back, that will certainly be an indicator that the economy is recovering more broadly,” Walter said.

Another item on his watchlist: a rebound in sales at resort spas, which were hurt more than spas at other locations as people cut back on vacation travel.

Michael Movahedi, owner of Signature Leather and Travelware in Arlington, Va., says he wants to see people once again buying name-brand luggage.

“When the economy was good, people would buy to impress. They’d get a really fancy bag and toss the other one. It will be a good sign when people ask me, ‘Can I leave my old luggage here?”’

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