Is the “Lipstick Effect” fading?

Photo by Amy Shamblen on Unsplash  

When all other businesses and stocks are struggling and plummeting under terrible economic situations, there is one industry among others that is said to have actually had an increase in sales and profit: the cosmetic industry. This is due to the phenomenon labeled as the “lipstick effect” (also commonly referred to as the “lipstick index”). However, is this effect starting to fade?

Although the term was first coined by cosmetic company Estée Lauder during the economic downturn of 9/11/2001, this phenomenon can be traced back to the Great Depression of the 1930s when cosmetics sales increased while the U.S. industrial production was being halved. The idea of the “lipstick effect” is that consumers will still indulge in small luxuries during economic downturns, or when they are strapped for cash because they cannot afford extremely costly items. This idea is linked to psychology and how humans want to splurge on products and services that can stimulate even a little bit of happiness within them, even if spending a lot of money on a plane ticket or the newest electronic device is out of the question. Another theoretical basis for the “lipstick effect” is that because labor markets become more competitive during times of economic recession, job seekers must compensate by maintaining a vying edge over other candidate employees appearance-wise. Thus, this can lead to them spending more on goods that would enhance how they are perceived visually, such as cosmetics. However, regardless of where this effect stems from, many businesses take advantage of this effect to convince investors of their company’s resilience. 

The reason why people are suspecting the continuity of this effect is rooted in the declining patterns seen in the lipstick industry after the COVID-19 pandemic. An influx of impulse buys did not materialize during the economic recession and period of inflation. In fact, McKinsey & Co. Inc. found that more than one in five consumers expect to spend less on make-up and skincare in the coming months in Europe. Furthermore, as the population was trapped inside their homes and forced to cover the lower half of their face with masks, lipstick use sank drastically. 

However, it is important to note that the “lipstick effect” does not just entail lipstick, it encompasses a variety of more affordable products and services and is also a general term for purchasing small luxuries as opposed to expensive commitment-heavy items. One of the reasons why fast-casual restaurants and movie complexes typically do well amid recessions is that cash-strapped individuals want to treat themselves to something that lets them forget their financial problems. In fact, Britain, who was experiencing a housing costs crisis in October 2022, saw a rise in demand for not just makeup, but also fake nails, chocolate, and coffee. Additionally, this phenomenon does not necessarily guarantee that cosmetic companies are safeguarded from economic downturns, more that they tend to be more resilient against them. 

Although the COVID-19 pandemic did bring a plethora of change, whether it truly altered this established effect, is too nebulous to determine.