Economics: the lipstick effect

Women tend to buy more beauty products during a recession, but that may not apply in these difficult times
By Stafford Thomas for BusinessLive

Consumers go into lockdown mode during periods of economic hardship, slashing their spending on big-ticket items, apparel and even food. But they draw the line when it comes to cutting spending on cosmetics and personal care.

“People may cut back on other things such as clothing, but not on cosmetics,” says Clicks Group CEO David Kneale. “Beauty products remain an affordable luxury.”

That fact is showing in retail sales figures for the three months to May.

Measured in constant 2012 prices, overall retail sales for the period came in 1.5% up compared with the same period in 2016. Bucking the trend, cosmetics, toiletries and pharmaceutical sales were up by a healthy 5%.

The general dealer sector, comprising mainly supermarkets, took heavy strain, limping in with sales up 1.4%. Clothing and footwear retailers’ sales contracted by 1.7%.

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The “lipstick effect” seems to be working in the beauty sector’s favour. Proponents of the theory assert that in tough times women buy more, not fewer, beauty products.

“I am a strong believer in the lipstick effect,” says Kneale.

The lipstick effect was first brought into the spotlight in 2001 by Leonard Lauder, chairman emeritus of US cosmetics giant Estée Lauder, who observed a consistent pattern of rising beauty product sales during recessionary periods dating back to the Great Depression.

Michael ten Hope, CEO of Cavi Brands, which imports brands such as Chanel, Burberry, Van Cleef & Arpels and Hermès, says the lipstick effect held true during the last recession, when GDP growth fell to a low of -6.1% in the first quarter of 2009 and averaged -1.5% for the year.

This time, however, he is not as certain the lipstick effect will save the day for the beauty sector.

“We are still enjoying single-digit sales growth, but it is still too early to say categorically that the lipstick effect is working,” says Ten Hope. “For the first time ever we are seeing demand stuttering.”

Highlighting his concern, Ten Hope says demand began the year on a strong note but slumped in April. “We even saw destocking by retailers,” he notes.

Could it be that, unlike the previous recession, this one comes with a huge overlay of political uncertainty?

“Even consumers in the upper-income LSM9 and LSM10 segments are cautious about spending,” says Ten Hope. “They are nervously watching the sociopolitical horizon.”

Author : Stafford Thomas