Here’s why lipstick isn’t as useful as an economic barometer as it used to be

Business

Once touted a barometer of consumer demand, lipstick appears to be losing its cachet as an economic indicator amid shifts in the market for beauty products, some analysts say.

The “lipstick index” is a term coined by former Estee Lauder chairman Leonard Lauder after the bursting of the dot-com bubble in the early 2000s sent the U.S. economy reeling. Lauder noticed that women substituted costlier luxury items for more practical indulgences like lipstick.

Since then, lipstick sales have become associated with consumer confidence, as rising sales of the product suggested consumers could be turning more cost-conscious in the face of a slowing economy. In fact, the CEO of French cosmetics giant L’Oreal cited the “lipstick effect” as recently as this week to account for buoyant demand in China.

“It’s the famous ‘lipstick effect’ — sometimes when people spend less on expensive items like cars or buying apartments, they have more available income and they like to indulge themselves with beautiful products,” CEO Jean-Paul Agon told CNBC this week. “It could be absolutely positive for us,” he added.

The lipstick industry is forecast to hit $17 billion in market value by 2023, according to marketing firm TechSci Research. However, in the face of a potential economic slowdown, the lipstick index’s reliability is being called into question, with the dynamics of the marketplace changing.

According to London-based research company Euromonitor, global lip products (which account for lipstick, lip gloss and liner) are projected to jump 18 percent between now and 2022 – even with global growth expected to taper off. And during the great recession, lip products actually fell by nearly 3 percent, according to marketing research company Mintel.

Experts say that the expected pickup in demand, combined with the 2007-2009 ebb in demand, undermine Lauder’s original thesis.

Meanwhile, the growing popularity of other beauty products are lessening the importance of lipstick sales as a bellwether. The market for beauty products actually grew during the great recession, and is projected to rise by 3 percent through 2020, according to analysts at Mintel research.

The last recession “actually helped to spur growth in the nail color and care category as women tightened spending and turned to more at-home nail care options, potentially in lieu of visiting the salon” said Alison Gaither, a Mintel analyst. In fact, nail products soared by nearly 12 percent during that time, she added.

Nail and lip products are just a fraction of the broader market for color cosmetics, which includes multiple makeup products and cosmetic sets, and is projected to notch more than $11 million in sales this year with a global value of $76 million, according to Euromonitor.

It suggests isolating lipstick sales as consumer weathervane is losing much of its usefulness. While beauty product growth is expected to be modest in the near-term, key categories like skin and body care, and color cosmetics have “a safety bubble,” according to Gaither.

Mintel’s recent analysis stated that innovations in the marketplace are keeping beauty sales afloat, even when the economy turns rough.

Consumers “may try a lower price product and then when they do have more income trade up to a brand in another,” Gaither said, adding that “overall there’s always loyalty to the category” – that’s more than enough to offset a drop in lipstick sales.

–CNBC’s Chloe Taylor contributed to this report.

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