Recession: Economic ‘lipstick effect’ trend proves downturn is imminent

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They’re tiny, cheap items that we toss in our shopping cart without much thought – but they might just prove how bad things are going to get.

We saw it during the Great Depression and during the recessions of the early 1980s, early 1990s and early 2000s.

And now, with Australia and the world on the brink of another economic downturn, the ‘lipstick effect’ could be about to reappear.

What is the “lipstick effect”?

It’s a whimsical name given to a very real economic trend: when times are tough, people cut back on spending, but they find it hard to resist small treats, like cosmetics, to lift their spirits without breaking the bank.

As a result, spending in retail categories like cosmetics tends to skyrocket during troubled times, and this trend has been repeated over the decades and across the world, including in the aftermath of 9/11. , when Estee Lauder President Leonard Lauder shared anecdotal evidence of a spike in lipstick sales, which happened again during the GFC.

Does it happen again?

Earlier this month, Forbes reported that new data from global market-tracking firm NPD Group revealed that sales of lipstick and other lip makeup products “were up 48% in the first quarter compared to the year previous product, more than twice as fast as other products in the beauty category”.

He also noted that “lipstick sales continue to grow week over week, with premium brands taking a bigger share of sales than mainstream brands. Women are also embracing brighter, more dramatic colors this year, rather than natural, muted looks.”

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Australian Bureau of Statistics data shows cosmetics in the toiletries and pharmaceuticals category topped $4.5 billion last year in Queensland, while cafes, restaurants and takeaways brought in $9.6 billion, the Mail-Mail revealed, with the publication speculating whether increased spending in these two categories could help save Australia from recession.

And according to research firm IBISWorld, online perfume and cosmetics sales in Australia will reach $2 billion in 2022, with the industry’s market size expected to grow by 5.5% in 2022.

“The market size of Australia’s online perfume and cosmetics sales industry has grown faster than the overall online retail sector,” IBISWorld noted.

What does this mean for Australians?

While these statistics alone don’t prove the trend is repeating itself, ANZ senior economist Adelaide Timbrell told news.com.au that the lipstick effect is a well-known phenomenon in circles. financial.

“The lipstick effect is a name for it, although it comes in different forms, and it’s when during an economic downturn, although total spending in the economy tends to decline or not increase as much as usual, there is an increase in certain categories of small luxuries,” she said.

“People aren’t buying as many big products as they usually would, but they’re comforting themselves with small treats.”

She said while it was difficult in Australia to tell whether the lipstick effect was already happening based on publicly available data, it was a trend that had been seen during previous economic downturns.

And she said that based on worrying signs for the economy in the coming months, it was reasonable to expect the trend to pick up locally.

“When you look at the spending outlook for the rest of the year, there are headwinds for people like interest rate increases that will hit anyone with a mortgage or debt, very high inflation which means that grocery and electricity bills are getting more expensive, and we’re also seeing house prices go down at the same time that bills are getting more expensive,” she said.

“But while overall wealth may not be growing, on the other hand, we’re seeing low unemployment, so even if people aren’t seeing their paychecks keep pace with the rising cost of life, it’s less likely than usual for that paycheck to go away.

“So while people may not be buying those larger items that they bought during booms like cars, home renovations, or major appliances, we can see with low unemployment and a solid wage growth a little more growth than we would otherwise see in small things like takeout and small luxury items.

Ms Timbrell said this trend had also been seen at times during the Covid pandemic.

“Sometimes spending was much lower, but we also saw in specific categories that people were willing to spend – for example, during lockdown we saw sports equipment and home gyms and weights going up because that people didn’t want to go crazy at home. she says.

“We expect total spending to slow as the economy slows in response to slowing global economic growth and rising interest rates, but we could see a few smaller categories gain.”

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