The Lipstick Effect

The Lipstick Effect is, contrary to its name, an economic phenomenon. It describes how consumers continue to buy small luxury goods even during economic recessions. The concept suggests that when people feel financially constrained, they may forgo big-ticket luxury purchases (like designer bags or high-end vacations) but still indulge in affordable luxuries that make them feel good.

One of the earliest observations of this effect was during the Great Depression (1929-1939), when despite massive unemployment and economic hardship, cosmetic sales remained steady. In fact, the industry’s sales increased. However, the effect is believed to get its name from the 2001 recession, when lipstick sales soared despite the economy in a decline. It became  so popular that chairman Leonard Lauder introduced a term called the ‘lipstick index’ which tracks economic declines using rising lipstick sales. This was not accurate, and was first intended as a joke, but to some extent, a chart like that on a wider scale of monitoring small luxuries might predict recessions.

The main reason for this is because people believe looking good enhances their professional and personal opportunities, making them more competitive in difficult economic times. It also psychologically provides a mood boost. It’s interesting that we refuse to believe we are financially not great and spend it on luxuries, while also being aware they cannot afford big luxuries and instead spend it on small luxuries.