Saturday, February 28, 2009

The Lipstick Effect

n. During a recession, the tendency for consumers to purchase small, comforting items such as lipstick rather than large luxury items.
Lipstick sales are red hot. So why is no one smiling?

The reason is that women traditionally turn to lipstick when they cut back on life's other luxuries. They see lipstick, which sells for as little as $1.99 at a supermarket to $20-plus at a department store, as a reasonable indulgence and pick-me-up when they feel they can't afford a whole new outfit.

Example Citation: 

"If you've been following the news in recent weeks, you've probably heard about the "lipstick effect." As described in such outlets as NBC, The New York Times, and The Wall Street Journal, the idea is that, during a recession, women substitute small, feel-good items like lipstick for more expensive items like clothing and jewellery. And indeed, between August and October, lipstick sales were up 11 percent over the same period last year".  

    - Norm Scheiber,"Replacement Killers," The New Republic, Jan. 7, 2002

"When lipstick sales go up, people don't want to buy dresses," says Leonard Lauder, chairman of Estee Lauder Cos. Lauder's Leading Lipstick Index tracks lipstick sales across Estee Lauder's many brands, which account for sales of about half of all prestige cosmetics in the United States and include Stila, Origins, Bobbi Brown, MAC and Prescriptives. Since the Sept. 11 terrorist attacks, the index is up broadly, says Lauder. The index also climbed during past recessions, such as in 1990. . . . Other cosmetic items don't tend to benefit from the lipstick effect". 

    - Emily Nelson, "Rising Lipstick Sales May Mean Pouting Economy," The Wall   Street Journal, November 26, 2001

As the economy slows and spending hits an all-time low, sales of lipstick are soaring. It is well known in financial circles that when times get tough people stop splurging on the large extravagant purchases such as cars and, instead, treat themselves to small luxuries like lipstick.

So, when our lips are red, inevitably so is the economy, and the recent figures from L'Oréal, Beiersdorf and Shiseido confirm this.

In the first half of 2008, L'Oréal showed like-for-like sales growth of 5.3% and Dhaval Joshi, analyst with RAB Capital, says this indicates the 'lipstick effect' has returned once again.

'The evidence shows that when budgets are squeezed, people simply substitute large extravagances for small luxuries,' he said.

The Evening Standard on how to spot a recession

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