The Lipstick Effect and You

By TescoPLC https://www.flickr.com/photos/122099374@N07/14336411625

As a sign of countrywide money troubles, your mind might stray towards soaring petrol prices and cold houses. For some people, their first thought is something entirely different and – to some- completely unrelated. Lipstick.

The Lipstick Effect is one of the strangest theories in economics today. It works on the idea that in times of economic hardship, sales for things that we don’t consider to be necessities should go down, but contrary to this, lipstick sales go up. In most luxury sectors this is true. For example, in 2008 car sales went down by a third, but cosmetics sales soared.

Craig Anderson from the Stirling Management School explained it. “There is a substitution effect here where as people’s luxury spending is reduced they just look for what goods they can allocate it to still within the category of ‘luxury’.”

During recessions in the early 1980s, 90s and 2000s, the European personal products sector outperformed the broader market by around 100%. In 2008, although the markets of pricier items such as cars, were down by a third, L’Oréal experienced a 5.3% sales growth.

This graph shows the profits of two of the biggest beauty brands in the UK over a 17 year period. There is a noticeable increase in L’Oréal’s profits in the time just preceding the 2008 recession which continued to grow through 2008, not being hit with the same decline as many other companies.

Estee Lauder also increased sales to a less noticeable degree in that time period. L’Oréal and Estee Lauder both experienced a dip in profits during the Covid-19 pandemic.

Covid-19 may have been the death knell for this idea however, as lipstick has taken the back seat in the eye of the modern woman. Eye makeup has become the new star, with sales up by 204% during a three-month period in the height of the pandemic. Whether this be because masks hid the rest of the face or because people were taking the time to experiment with less classic styles we may never know.

Photo by hto2008 https://www.flickr.com/photos/27117418@N07/5289859076

Other growing competitors for the star role include different skincare products as Estee Lauder noticed skin care sales rocket up to three times those of their makeup products in the last quarter of 2020. This is compared to the same time period in 2019 where the sales of makeup and skincare products sat at roughly the same point.

Dado Galdieri/Bloomberg

In the future, women will continue to treat themselves in times of hardship, although now these treats appear to be taking a different shape. Women might treat themselves to self-care products when they are stressed, or maybe they will buy themselves a drink and a takeaway.

As the Guardian found, stressful times like the 2020 lockdowns have increased sales for other treats that stray from the idea of ‘little luxuries’ that the Lipstick effect relies on.

San Miguel experienced a 63% rise in sales and Corona’s sales ironically grew by 40% in the same time. These may just end up as the newest lipstick trend.