The beauty industry has proven to be resilient in the face of economic challenges 2023, as evidenced by the lipstick index. Data shows that the beauty industry is holding its own despite inflation. 'The lipstick index', a term coined by Leonard Lauder, chairman of the board of Estee Lauder, is a financial indicator that uses cosmetic sales to forecast bear markets or recessions. This phenomenon suggests that during inflationary times, shoppers may cut back on luxury purchases yet still indulge in affordable splurges, such as cosmetics.
In January 2023, the overall U.S. Consumer Price Index cooled slightly to 6.4%, continuing a seven-month decline. However, the lipstick effect remained strong. According to NielsenIQ, the beauty industry is dealing with a 10% average unit price increase every year, with color cosmetics and nails, facial skincare, and haircare taking the lead. Despite these price increases, consumers continue to purchase small luxury items, such as lipstick, even during economic downturns.
Historically, the beauty category has defied the laws of recession, showing a significant uplift in sales due to the lipstick index. Consumers tend to shift spending away from other products, such as electronics or home appliances, to beauty-enhancing products in the beauty category. This includes the skincare industry, as researchers theorize that the products being purchased by women are in any category that enhances their attractiveness to men.
During the Great Depression, makeup sales actually increased between 1929 and 1933, while industrial production plummeted 50%. Similarly, during the 1990 recession, the only area of the manufacturing sector to witness employment gains was the cosmetics industry, due to unceasing demand. Even in more recent times, such as the 2001 recession and the Great Recession of 2008-2009, cosmetics brands like L'Oréal, Beiersdorf (maker of Nivea), and Shiseido all reported substantial gains.
The lipstick index demonstrates the enduring appeal of cosmetics, even during challenging economic times. As the global beauty industry rings in over $500 billion worth of sales each year, investors who follow the lipstick index could find opportunities to profit even when the broader market is down. With the beauty industry continuing to hold its own despite inflation, it remains a testament to the power of affordable luxury in the face of economic adversity.
