These are tiny, cheap items that we throw in our cart without much thought, but they could show how bad things will go.
It was seen during the Great Depression, and in the recessions of the early 1980s, early 1990s, and early 2000s.
And now, as Australia and the world are on the brink of another economic downturn, the “lipstick effect” could be about to raise its head again.
What is the “lipstick effect”?
It’s a fantastic name given to a very real economic trend: when times get tough, people reduce their spending, but it’s hard for them to resist small delights, like cosmetics, to cheer themselves up without breaking the bank.
As a result, spending on retail categories such as cosmetics tends to increase in difficult times, and has been a repeated trend over the decades and around the world, even after 9/11, when the president of ‘Estee Lauder, Leonard Lauder, shared anecdotal evidence of an increase in lipstick sales, which happened again during the GFC.
Does it happen again?
Earlier this month, Forbes reported that new data from global market monitoring firm NPD Group had revealed that sales of lipstick and other lip makeup “grew 48 percent in the first quarter over the previous year, more than double faster than other beauty products “.
He also noted that “lipstick sales continue to grow week by week, with prestigious brands taking a larger share of sales than mass market brands. Women are also picking brighter and more spectacular colors this year, rather than of natural and dull aspects “.
Data from the Australian Bureau of Statistics show that cosmetics in the toiletries and pharmaceuticals category topped $ 4.5 billion last year in Queensland, while cafes, restaurants and services takeaway food earned $ 9.6 billion, the Mail-Mail revealed, with the publication speculating whether an increase in spending in these two categories could help save Australia from recession.
And according to research firm IBISWorld, online sales of perfumes and cosmetics in Australia are worth $ 2 billion in 2022, and the market size of the industry is expected to increase by 5.5 per cent by 2022.
“The market size of the online perfume and cosmetics sales industry in Australia increased faster than the online retail sector in general,” IBISWorld noted.
What does it mean for Australians?
While these statistics alone do not show that the trend is repeating itself, ANZ senior economist Adelaide Timbrell told news.com.au that the lipstick effect was a well-known phenomenon within financial circles. .
“The lipstick effect is a name for it, although it comes in various forms, and it is when, during an economic recession, although the total expenditure of the economy tends to decrease or not grow as much as it is usual, there is an increase in certain categories of smaller luxuries, ”he said.
“People don’t buy as many big things as they normally do, but they’re comforting themselves with little treats.”
He said that although in Australia it was difficult to know whether the lipstick effect was already occurring from publicly available data, it was a trend that had been observed during previous economic recessions.
And he said, based on worrying signs for the economy in the coming months, it was reasonable to expect the trend to pick up again locally.
“When you look at the spending outlook for the rest of the year, there are some headwinds for people like rising interest rates that will affect anyone with a mortgage or a debt, very strong inflation that it makes food and electricity bills more expensive, and we are also seeing falling house prices while bills are more expensive, ”he said.
“But even if overall wealth doesn’t grow, on the other hand, we’re seeing continued low unemployment, so even though people won’t see their paychecks keep pace with rising costs of life, is less likely than this paycheck.
“So while people may not buy those larger ticket items they made during the waters, such as cars, home renovations or large appliances, we may see a low unemployment rate. and solid wage growth a little more growth than we could see otherwise in smaller ones. things like takeaway food and smaller luxury items. “
Ms Timbrell said the trend had also been seen at times during the Covid pandemic.
“Sometimes the expenditure was much lower, but we also saw in specific categories that people were willing to spend; for example, during confinement we saw an increase in sports equipment and home gyms and weights because the people didn’t want to go crazy at home. ” she said.
“We expect total spending to slow as the economy slows in response to slowing global economic growth and rising interest rates, but we can see some small categories gain.”