John Kraizel’s ten year old Pontiac could use some work.
KRAIZEL: “It’s got 132,000 miles on it. It just needs general maintenance a lot of the time.”
But car repairs and a lot of other expenses will have to wait since he lost his job in Glenwillow.
BOBKOFF: “So we’re driving by, I see a big Dirt Devil sign, this is where you used to work, right?
KRAIZEL: I personally had mechanical engineers, electrical engineers, technicians that reported to me.”
Kraizel is 48. He had been heading up a team developing a robotic vacuum to compete with the likes of the Roomba. But the company pulled the plug in January, leaving Kraizel and about 130 others there out of jobs.
KRAIZEL: “I’d say we were leading a comfortable life. Not extravagant, but comfortable.”
John Kraizel’s car may need work, but his home is spacious and tidy, sitting in a development in Solon, one of Cleveland’s wealthier suburbs. There’s an in ground pool in the backyard.
A comfortable life means he had a pile of bills—from the many businesses that get a piece of his income.
So when Kraizel was cut in January, he went on a spending diet.
KRAIZEL: “We go to no movies. We got rid of Netflix, Blockbuster, everything, we don’t do any of that.”
But that’s just the start. Kraizel cut expenses down to the essentials. No dinners out. Fewer haircuts. Definitely no lawn service. And the house cleaners? He pushes his own vacuum now.
All told, Kraizel estimates he’s cut about $1000 from his monthly budget. That’s $1000 out of the local economy. Places like Blue Canyon, one of his favorite restaurants…
EVANS: “People just stopped going out. People were really scared. They didn’t know what tomorrow was going to bring.”
Chef Brandt Evans is a co-owner at Blue Canyon, and he’s talking there about the lowest point of the recession…right around the time Kraizel lost his job. Since then, the restaurant slashed the prices on nearly all entrees. And, Evans had to get creative to keep diners spending.
EVANS: “I started actually offering smaller, bite-size desserts. Instead of an $8 desert, I cut my desserts down in fours.”
John Kraizel’s pool service is working to keep its customers too. By servicing his pool himself, Kraizel saved upwards of a thousand dollars in maintenance for the season. That’s money not going to Cathy Sotka and her husband. They run the pool servicing company, and while business is mostly holding up, they’re nervous about revenues this year. So as a precaution Cathy Stoka has been cutting back, hurting other local businesses like her favorite shoe shops.
SOTKA: “Yes, no shoes. The neighborhood kids are not doing my nails. We’re just cutting back on groceries. We don’t eat as well as we used to.”
Now, you might think all companies will hurt when their customers suffer. But the thing with these ripple effects is that there can also be unexpected benefits, as Sotka’s business found. Some of their customers kept their pools open instead of going on vacation.
John Kraizel and his family had to skip their vacation too.
KRAIZEL: “We used to take a vacation pretty much every year. We used to stay at Wild Dunes up on the East Islands up outside Charleston.”
So I called up that South Carolina resort to see how it’s faring.
CHAPMAN: “We do feel people like John’s absence on the resort.”
Andressa Chapman is in charge of marketing at Wild Dunes. She says the typical guests who did come back are staying fewer days, or downgrading their accommodations. But Chapman says Wild Dunes is also seeing a surprise: an influx of wealthier customers this year.
CHAPMAN: “We’re getting in a guest who potentially would have traveled abroad for vacation, but instead has chosen to stay closer to home and save a little bit more on their vacation.”
That doesn’t surprise Justin Sydnor. He’s a behavioral economist at Case Western Reserve University.
SYDNOR: “Businesses normally lie somewhere on a spectrum from high end to low end, and what we expect in a recession is that most of that middle zone, it’s hard to say what’s going to happen to them because there’s substitution. The people who ate caviar are trading down a little bit. The people who used to stay at the nicest possible hotel room are likely to come down a bit.”
Many experts say the economy won’t really start to recover till consumers have the confidence to start spending again. John Kraizel says whenever he lands a new job, he’s not going to burn through cash like he did before the layoff.
KRAIZEL: “I’d probably say about a year before I would do that. I need to re-establish financially.”
Ripple down seems to happen a lot faster than ripple up.