Can We Gauge Economic Health with Lipstick Sales?
Our beauty habits may reveal more about the state of the economy than we realise. Estee Lauder chairman Leonard Lauder famously coined the "lipstick index" after the economic downturn following September 11, 2001. He observed that lipstick sales tend to increase during tough economic times as women replace luxury purchases with affordable indulgences. This phenomenon was evident when U.S. lipstick sales surged by 11% in the fall of 2001, and cosmetics sales overall rose by 25% during the Great Depression.
In 2020, the COVID-19 pandemic shifted this trend. With face masks and remote work becoming the norm, Estee Lauder’s CEO, Fabrizio Freda, noted a shift from lipsticks to skincare products, dubbing it the "moisturising index." "But the concept of the index is still there," Freda emphasised.
The Resurgence of Beauty Sales
This phenomenon might be reemerging. Sephora recently reported a record sales year, and consumer research from Circana shows that prestige beauty products are outpacing mass beauty sales, with growth rates of 9% and 2%, respectively, in the first quarter of the year. While the lipstick index is more anecdotal than technical, it offers a fun perspective on economic conditions. As the post-pandemic spending spree slows in the United States, it's worth exploring its implications.
Insights from Neela Montgomery
Neela Montgomery, CEO of Overeon, a collective of premium cosmetics brands, shared her perspective on the beauty market in an uncertain economy with Before the Bell. Below are excerpts from the interview, edited for length and clarity.
Before the Bell: Americans are beginning to cut back on spending. Yet, data shows prestige beauty sales outpacing lower-priced beauty sales. Why is that?
Neela Montgomery: During COVID-19, beauty shifted towards self-care purchases, making it more resilient to economic trends. People are more likely to cut spending on fashion and high-priced goods than beauty products. The beauty industry is fast-paced and constantly innovating, offering affordable indulgences like our Bare Minerals Lip Gloss Balm. This makes it appealing and accessible, even at $24.
Have you seen resilience or a boost in the beauty industry?
The prestige beauty market has been incredibly resilient across all demographics. Initially driven by skincare, fragrance, and makeup, the prestige beauty market is now leading. The market's performance is far stronger than expected, as beauty products are considered purchases but not completely discretionary.
Are TikTok and other social platforms influencing sales?
Yes, platforms like TikTok drive trends and sales. While we can't respond to every microtrend, we adapt to those aligning with our brand. For example, Laura Mercier focuses on a flawless face, so trends like glassy skin aren’t a fit, but the latte look might be. We're launching a caviar matte lipstick in response to the resurgence of matte lipstick, which is particularly popular in Asia, a key growth area for us.
TikTok communities have a significant impact on social selling, accounting for almost 20% of our brand.com sales. This trend underscores the importance of peer recommendations over brand messaging.
What trends will dominate the beauty market in the second half of the year?
"Clean" beauty and "no-tox" (anti-botox) products are gaining traction. People seeking a natural look and those opting for cosmetic procedures split the market. There's a growing demand for effective products for people avoiding cosmetic procedures. The "clean girl" look with a pop of colour, like a red lip, continues to grow. As consumers become more knowledgeable about ingredients, they are gravitating towards products that contain natural extracts such as sesame seed and sea buckthorn, which are considered more effective than well-known ingredients like retinol.
Conclusion
As the economy faces uncertainty, beauty sales patterns offer intriguing insights. The shift from the "lipstick index" to a broader "beauty index" highlights the evolving nature of consumer behavior. While not a definitive economic indicator, these trends provide a unique lens through which to view economic resilience and consumer priorities.