Aug 18, 2022
With inflation at a 40-year high, we dive into a pocket of the economy that generally does well in downturns... cosmetics.
Titan’s Takeaway: In our eyes, the lipstick index can provide a helpful insight into the health of the consumer. Retailers and investors alike will be tuned in as the economy continues to chug through the highest inflation in 40+ years.
During the 2001 recession, cosmetics mogul Leonard Lauder noticed something interesting: as the general economy got worse, Estée Lauder’s lipstick sales got better. This led him to coin the term “lipstick index,” a theory that in times of economic hardship, consumers stop making big expensive purchases – like a luxury bag or a fancy dress – in favor of smaller, less pricey items such lipstick.
This index was a popular point of conversation in 2008, and 2020 – though the latter saw a spike in nail polish sales instead of lipstick due to pandemic-induced mask wearing. In 2022, the lipstick index is back in vogue.
According to The NPD Group, a market research firm tracking consumer trends, makeup sales, including lipstick, are up 20%, skincare sales up 12%, fragrance up 15% and hair care up 28% for the first half of the year. Meanwhile, consumer data from Deloitte shows that the percentage of Americans worried about their current savings has nearly doubled to 61% since March 2021.
Consumers might be tightening their wallets, but they’re not sealing them shut completely – rather, still making room for the little things.
These consumer preferences are bleeding through to the bottom line for businesses as well. Offshore holding L’Oréal, the world’s largest cosmetics company, ended the first half of the year on a strong note, reporting double-digit like-for-like growth across nearly all regions, business lines, and product types. Domestically, ULTA beauty has outperformed the broader market year-to-date, and investors will be tuned into their earnings on the 25th to understand the magnitude of the “lipstick index” in today’s economy.
Although not perfect science, Leonard Lauder’s theory tells us something important about consumers. Even in hard times, people want to feel a bit of joy. And for many, they get that by painting a smile on their face…with lipstick.