The Lipstick Effect: Alive and Well

The economy may be in deep trouble, but the beauty industry is bouncing back. Many shoppers are rejecting the big-ticket items, in lieu of their hair treatments, or a pedicure/manicure. After asking some of my friends what they would do, the consensus was they would rather spend money on looking good rather than eating out. After all, who can enjoy a night on the town with their roots showing or sporting chipped nails? 

Aveda and Regis Salons, along with other beauty firms are reporting stronger-than-expected sales, despite three years of economic turmoil. The Professional Beauty Association predicts that the beauty industry will reach $59 billion in 2012. That’s good news since 2006 was the last full year before the recession hit when the industry reported $43 billion.

Economists call it “The Lipstick effect.” No it’s not the residue one leaves on a white linen napkin while dining in a fine restaurant. This phenomenon began during the Great Depression of the 1930’s and has been present in every recession since. Shoppers may be too financially drained to purchase cars, big screen TV’s or diamonds, but the average woman still wants to dabble in small guilty pleasures: makeup, colognes, manicures and having her hair done.

With the economic down turn and lifeless recovery consumers have been forced to make trade-offs. Many are buying smaller, cheaper products, visiting their salons less often or choosing to give up eating out and going to a movie. By doing so, they are able to purchase their beloved beauty brands and stick with their old habits. As a result, beauty companies are recovering quickly from the economic downturn. 

"It's counter-intuitive," said Ken Goldstein, economist for the Conference Board, which publishes the U.S. Consumer Confidence Index. "In some cases, things are so bad and so tough that the consumer can't go on vacation. She can't buy a dress. ... But at least she can buy some lipstick."