The Lipstick effect: An Economic Indicator & it’s relevance in COVID-19 global recession.

In the recession of 2001, the Ferraris stayed in their showrooms, Louis Vuitton didn't sell a single bag and the Gucci stores remained closed. In short, all the extravagant luxuries couldn't sell a single commodity and faced huge losses and large employee lay-offs. On the other hand, lipstick, a small commodity used generally by women only sold more and more pieces than they were doing before the recession.

Leonardo Lauder, then, claimed that lipsticks sales were inversely proportional to the economy/ GDP of the country which was backed up by the statistical evidence. It happened both in 2001 and 2008 economic crisis when most of the factories were going out of business, it was the cosmetic factories that boasted of not even firing a single employee in that period and even reported increased profits.

Looking at the line-chart, the GDP has declined in 2001 (due to recession) but sales of lipsticks have raised at the same time, however, the consumer spending on other retail items slumped down. (shown in another chart below)

About the 2001 recession:

The 2001 recession was an eight-month economic downturn that began in March and lasted through November that mainly affected the European Union and the US. It was triggered primarily by dot-com bubble collapse, 9/11 attack and series of accounting fraud in big corporations. (e.g. Enron)

Lipstick makes female feel feminine and fulfills the desire to 'feel good'. It is one of the most popular cosmetic items in existence, even during the crisis, mainly because it is like the norm for females to have their lips decorated and also because it is the least expensive luxury item. This indulgence into less expensive luxury items during recession times is simply known as LIPSTICK EFFECT. In other words, in times of recession, people because of the budget constraint are not buying extravagant luxuries but are going after cheap indulgences such as lipsticks.

It is a real economic phenomenon monitored by economists. The theory, first proposed by Leonard Lauder, has become popular among business analysts, strategists, consultants, investors and, advertising designers, since the times of post-war depression. The effect is not only limited to the cosmetics industry but extends to all the industries dealing with less-expensive luxury goods. Other than lipsticks, the sale of other less expensive luxury items also increased like beer, men's underwear, chocolates, sources of entertainment like Netflix (recently) etc. helping people cope with the times of economic adversity by vouchsafing them a pleasant and luxurious sensation.

In the times of fast-changing consumer behavior, is the inverse correlation between lipstick sales and GDP still valid for COVID-19 economic slowdown?

Well, the answer is- No, it isn’t.

So, can we claim the theory to be a hoax? Well, No again.

Because, although, lipstick sales have only increased by approx. 2.2 % in the US, nail-polish sales have surged by 24% during Covid-19 lockdown and CNN reported that the Chinese e-tailer saw sales of eye cosmetics (like mascara and eye-liners) increased by a whopping 150% mid-February, 2020. So, it could be concluded that the idea governing lipstick effect is still valid, with some arguments of course, but other cosmetic items have replaced the ‘lipstick’. This doesn’t mean that the cosmetic industry is on the rise. It is, in fact, in decline like most other industries but mostly low-cost products from established industries have been able to maintain the sales or reported comparatively lower sales-decline than other products and industries despite it not being the basic need like grocery and pharmaceuticals.

It could be mainly due to masks as people are covering their faces when stepping out in public and therefore its sales have not surged like in previous recessions. The same reason they are emphasizing on the nail and eye make-ups. This might hit hard the lipstick sales for quite a long time.

Consumers will buy luxury goods even if there is a crisis. When consumer confidence in the economy is low, they will buy goods that fulfil luxury indulgences without breaking their banks.

The core idea of lipstick effect - during the financial struggle phase, consumers want to treat themselves to something that lets them forget their financial problems, still seems to be relevant in the Covid-19 recession. It certainly is an interesting correlation that can help investors and business people make decisions in their favor.

Apart from that, lipstick is also taken as an activism tool. Lipstick feminism is a kind of third-wave feminism that grasps conventional ideas of femininity alongside feminist thoughts. To quote from Rachel Felder "There could not be a more perfect symbol of suffragettes than red lipstick, because it's not just powerful, it's female.” But that’s another topic for discussion.