Lipstick Index Back: Cosmetics Strengthens in Economic Downturn
The long-held assumption that shoppers spend less during the economy might not be true for female shoppers — women fallen on hard times are even more likely to consume more cosmetics since they are unable to afford more expensive luxury goods.
This is what the Lipstick Index suggests.
A Christian Dior bag costs at least $3,000, but you only need to spend $30 to get a Dior lipstick. Fair enough.
First brought up by Leonard Lauder, chairman of the cosmetics giant Estee Lauder, the Lipstick Index was originally introduced to describe the increased sales of cosmetics during the early 2000s recessions. Recently the concept is back, after vanishing for nearly a decade.
Sephora, a chain of cosmetics stores that sells 300 brands along with its own brand, shows strong performance against the descending luxury industry. LVMH, the parent company of Sephora, reported in July this year that the “exceptional progress” Sephora has made strengthens its position in all regions.
Department store Macy’s saw its strongest 2015 sales in cosmetics, fragrances and home furniture and weaker in fashion watches.
In general, the performance of the cosmetics industry is inversely related with retail sales, one of the most viewed and important economic indicators.
Last week, the Commerce Department reported that U.S. retail sales declined in August by 0.3 percent. U.S. GDP grew at 1.1 percent in the first quarter 2016, according to the Commerce Department’s statement in June. Economists believe that the sluggish growth remains vulnerable to a new global economic crisis, which they attribute to U.S. and China, the two largest economic entities in the world.
“The global economy downturn has had significant impact on businesses around the world and caused my family to suffer from shrinking wealth,” said Angela Tian, a young lady from Australia. “Since then, it becomes a challenge for me to save money for a vacation while satisfying my desire to acquire luxury goods.”
Tian found cosmetics, especially lipsticks, a good solution to this conflict. “Lipsticks from luxury brands cost a lot less than shoes or bags, usually in the range of $30 to $50,” Tian said. “Not only does it allow me to keep up with the latest fashion trend but also fulfilling my shopping desire.”
While the sales of beauty products are climbing, the luxury market fades as Hermes and Richemont Group just lowered their forecast growth.
According to LVMH’s report, Sephora “continued to gain market share in all regions, recording double digit-growth in its revenue and profits and performing outstanding throughout the world.”
Last week, Switzerland’s Richemont Group, parent company of luxury brands Cartier and Dunhill, said its first-half (April-September) operating profit has declined about 45 percent year on year. Richemont Group claims that the luxury watches and other luxury goods signal fatigue demand globally and warned it may have to deepen cost cuts.
Hermes, another luxury giant, almost simultaneously lowered its eight percent forecast of annual growth rate, and saw its stock share drop by a significant 7 percent.
