Guest post by Ananya Iyer
There are a few industries that conspicuously follow the counterintuitive path of experiencing growth during an economic recession- discount retailers, casinos, repair, handymen. Among these is an unlikely contender- the cosmetics industry. In times of economic downturn, there has been a consistent observation in the rise in sales of the cosmetics industry- in particular, lipstick over other commodities.
This phenomenon has been prevalent for quite some time. The American economy during the Great Depression witnessed a reduction in industrial production by half- but the cosmetics industry saw a reported 25% increase in sales. During the Recession of 2008, cosmetics behemoth L’Oreal experienced a like-for-like sales growth of 5.3% during the first half of the year. Following the 9/11 terror attacks, the American economy’s recession worsened notably. At this time, Estee Lauder’s Chairman Leonard Lauder claimed that the sales of lipstick was inversely related to the general health of the economy, thereby dubbing the phenomenon the Lipstick Effect and declaring lipstick an indicator.
In the midst of a slowdown, the Chinese economy witnessed a 116% spike in sales of the cosmetics industry during the annual Spring Shopping festival, following last year’s spike of 92%. According to China Daily, products pertaining to male appearance are also becoming more popular. This incredible growth of the industry in China has contributed to L’Oreal achieving its strongest sales growth in a decade. CEO Jean-Paul Agon explicitly attributed the sales growth in China to the Lipstick Effect.
Although much of the research done around this phenomenon pertains to cosmetics, the word ‘lipstick’ is actually suggestive of almost all affordable luxury items, such as accessories, skincare, fragrances and even takeaway coffee- a perceived symbol of sophistication. These commodities are categorized as luxury, but do not cost the consumer nearly as much as the higher-priced luxury items of furniture, décor, automobiles or vacations.
An obvious explanation for this is a combination of justifiability and the shift in perception of luxury- cheap thrills are meant to substitute large purchases. The purchase of a lipstick wouldn’t yield the guilt of buying an expensive rug, but it is still a source of excitement. Moreover, as Nia Warfield of CNBC has pointed out- lipsticks are a practical luxury.
There are popular claims to an evolutionary explanation for this phenomenon. In a paper entitled Boosting Beauty in an Economic Decline: Mating, Spending, and the Lipstick Effect, Texan psychologists theorize how the regular cycles of famine and prosperity have conditioned humans to prioritize mate-seeking in times of crisis. According to these researchers, times of scarcity heighten women’s reproductive instincts- and so women prioritize their appearance and invest in smaller-priced luxury items like lipstick to attract potential mates. This study has been widely cited in explaining the growth of the mentioned industries during recession, but it does not actually prove that it is the result of a subconscious mating strategy.
The study looks at the different commodities that are usually on the average female consumer’s radar, and through a controlled study reported that after being informed of a hypothetical economic crisis, women were more interested in spending on smaller priced luxury items such as lipstick or nail polish that would enhance their appearance. It remains unproven that the reason for this finding is to secure their objective of reproduction.
It has also been suggested that the motivation for women to enhance their appearance is not only by virtue of their reproductive instinct but also professional. According to a study by Netchaeva and Rees of the University of Notre Dame, the goal of being financially secure is the most pertinent in the subconscious process of decision making- the economic concern does not make the distinction between romantic and professional avenues. Here, the Effect operates not only in times of financial crises of many, but also isolated money crunches in the lives of individuals. A waitress might choose to splurge on a pair of new shoes when her bank balance is bottoming out- to look more polished.
While these arguments may have some backing, the so-called indicator cannot be appropriated as a rule of thumb.
While it is true that the cosmetics industry saw a remarkable sales growth during the 2008 Recession- a widely quoted statistic in the context of explaining the Effect- lip product sales actually fell by 3 percent. This has to do with the trends in beauty- bold eyeshadow was focused on far more than lip products during this period. Similarly, cake mascara and soot-like eyeshadow were far more popular in the late twenties than the bullet lipstick. Lipstick in post-war America was actually seen as something that solidified a signature look- not something to have a collection of.
These examples only exemplify the reliance of the sale of beauty products on trends- which are determined by a plethora of factors, including marketing (the Boss Lady mania), social hierarchy (the popularity of a super pale complexion to avoid the tan suggestive of time spent working in the sun), iconic celebrity inspiration (Coco Chanel’s endorsement of a sunburnt, bronze complexion after passing out drunk under the Mediterranean sun), and so much more.
Trends aren’t predictable, and therefore analysts can’t foresee what may be a useful indicator in such an industry. For that reason, consumer goods as susceptible to changes in vogue cannot be used as accurate proxy indicators of the health of the economy.