In the midst of our current economic crisis, I think we are going through an American revaluation process. Americans (and much of the rest of the world) have been on an insane spending spree the last few years, and we are now coming to realize we have been going into debt to buy stuff we really don’t need, or we have greatly overvalued.
Case in point. My wife and I love getting massages. It’s a luxury we insist stays in the budget. Since we started getting massages twenty years ago the industry has experienced incredible inflation. I seem to remember in the 80’s paying $30 for a one hour massage. Now in many toney resorts you can pay as much as $250, with an average of around $150.
Last week we were in Santa Barbara, taking a walk after dinner, when we discovered a nice little massage place – in fact I think it was called “The Massage Place” – that charges $44 for an hour. We both had massages, and agreed they were terrific! The place was simple but clean, the massage therapists well-trained and professional. I am certainly not an expert in the day spa business, but it led me to wonder how they can charge less than 1/3rd the price of competitors, deliver a good product, and stay in business? And ultimately, what is the price elasticity of a massage in the current economy? Is it ridiculous that they ever cost $150 to $200? Is $50 the right price for the new economy? Will we now revalue massages, and massage providers that want to stay in the business will find a way to make a profit at that level?
My neighbor recently bought a new Hyundai Genesis. The Genesis is the Korean car company’s first foray into the luxury market, competing with Lexus, BMW, and Mercedes, but at about ½ the price of their similar offerings. I must say the Genesis is beautiful, has incredible performance, appears to be really well-made, and looks like a great bargain. I suspect that people that even a few months ago that would not have considered a Hyundai will now look seriously at the new model. Will we revalue luxury cars? Instead of paying fifty or sixty thousand for a big luxury sedan will we revalue to thirty five thousand, and car companies that want to compete will be forced to find a way to make a profit at that level?
Certainly the uber-luxury market will not disappear. There will always be a small population willing to pay hundreds of dollars to have their bodies rubbed with creams derived from goat foreskins while sniffing essential oils from antique copper urns. There will always be people so rich or auto-obsessed that they will pay a quarter of a million dollars to drive a car that can cruise at four times the legal speed limit and gives them traffic directions in three languages while massaging their buttocks.
But in this new economy even the well-off will switch directions. Our perspective on “being upscale” might change. Having a Hyundai Genesis in the driveway might indicate you are smart in this revalued world, not a financially-challenged wannabee the way it might have been regarded a few months ago. Seeing a movie, having a nice dinner, and a massage – all for the same price you paid for the massage a few months ago – just makes sense. The companies that survive this economic crisis will embrace the concept of revaluation.