The concept of the "lipstick effect" was first recognized by economist Juliet Schor in 1988, who observed that during economic downturns, women tended to purchase high-end makeup products, particularly lipsticks. However, the term itself was popularized by Leonard Lauder in 2001, after Estée Lauder’s lipstick sales surged by 11% during the economic uncertainty following the 9/11 attacks and the 2008 financial crisis. This phenomenon illustrates that in times of financial strain, consumers shift their spending from high-ticket luxury items, such as luxury cars and designer clothing, to more affordable luxury goods that still offer a sense of indulgence and status, but at a lower cost.
The lipstick effect is not confined solely to makeup purchases; it broadly describes the consumer behavior of gravitating towards less expensive luxury items when disposable income declines. In essence, when faced with reduced purchasing power, individuals seek to maintain their standard of living by opting for smaller, more affordable luxuries that provide immediate gratification and are highly visible to others.
For instance, India has experienced a GDP slowdown for six consecutive quarters, beginning in June 2018, with the growth rate for the July to September 2019 quarter dipping to 4.5%. Despite this economic downturn, certain segments of the Indian economy have displayed resilience, in line with the lipstick effect. The movie-going experience, considered a small luxury for many, has seen steady performance from major multiplex chains like PVR Cinemas and Inox Leisures. Similarly, companies in the fast-moving consumer goods (FMCG) sector, such as Hindustan Unilever (with brands like Lakmé) and ITC, reported double-digit profits during the September quarter.
In the apparel and accessories market, brands like Zara and H&M, which offer relatively affordable luxury, have outperformed high-end labels like Prada, Dior, Gucci, and Louis Vuitton. Interestingly, the second-hand market for luxury items such as purses and belts has also seen significant growth, driven by consumer demand for deferred payment options through monthly installments, further exemplifying the shift towards more accessible forms of luxury.
A notable difference in the current economic climate is the surge in demand for premium hair care products. As social activities have resumed post-lockdown, there is an increased need for styling products, while consumers continue to invest in treatments like hair masks, which gained popularity during lockdown periods. The hair care segment has been notably boosted by the influence of social media, which plays a crucial role in driving consumer trends and can lead to sudden spikes in demand for viral products.
For beauty manufacturers and retailers, the challenge lies in managing this demand volatility, as the scarcity of high-end beauty products can sometimes drive consumer desire even further, aligning with the principles of luxury economics where scarcity often enhances perceived value.
In India, the observable shift from high discretionary spending to smaller indulgences aligns with the lipstick effect and reflects broader consumer behavior during economic downturns. It will be intriguing to monitor how this trend evolves and the extent to which it influences consumer markets in the long term.
References
- https://www.livemint.com/opinion/columns/the-lipstick-index-is-back-as-post-pandemic-makeup-soars-11663087512637.html
-
https://www.roseinc.com/blogs/education/the-lipstick-effect-meaning#:~:text=The%20trend%20was%20first%20identified,in%202001%2C%20despite%20economic%20recession.
- https://info.ceicdata.com/the-lipstick-effect-in-india
- https://www.sudhakarrao.com/the-lipstick-effect-and-how-it-applies-to-21st-century-india/
.jpeg)
