Business

A Girl's Guide to Economics

As the truism goes, when times get tough, women buy lipstick to make themselves feel better. In 2001, Estée Lauder chairman Leonard Lauder coined the phrase "Lipstick Index" to describe why lipstick sales rose by 11 percent in the months after 9/11. The idea: when the economy is crap, we can't afford to buy the latest "it" bag or expensive pair of "Sex and the City"-inspired Manolos. So, to make our poor little shopping-obsessed selves feel better, we spend on things that make us feel pretty: colorful tubes of lipstick, plumping gels or glosses that can cost upward of $50. As Lauder put it, "In stressful times, many consumers are reaching out for those small indulgences that provide momentary pleasure."

That may be true, but apparently those indulgences are no longer centered on lipstick. This recession around, it's flawless skin—not rosy lips—that has become the female pick-me-up. According to new figures from Kline & Company, a market-research firm, lipstick sales across the board fell 5.8 percent during 2008, while liquid foundation sales have grown 2.5 percent. Which means, as the Financial Times put it in a story last week: "In this recession, foundation is the cosmetic to watch."

Really? Now, I'll admit it, I like a new lipstick (or in my case, gloss) every now and again—and maybe, just maybe, I did wander into a mall last weekend and buy myself a new powder foundation. But I wouldn't go as far as to say I substitute either of these things for larger purchases—and I'm certainly not not buying lip gloss when the economy is good. More than anything else, these products—to me, anyway—are impulse buys. Perhaps I wander past the Clinique counter on my way to the shoe department and get sucked in. Or I'm paying for a new pair of jeans, and there's a cute little lip gloss display right next to the cashier. I've already got the credit card out—might as well, right?

So yes, I buy makeup. And so do my girlfriends. But what irks me about the so-called Lipstick Index is how everybody feels the need to talk about it, constantly. Story after story tells of frivolous women turning to frivolous items—whether it's lipstick or foundation or Botox or whatever—to cheer themselves up when times get tough. All because one makeup executive once told us so eight years ago—probably in a brilliant marketing scheme to sell more of his own product.

Economists will tell you that, to some extent, the logic behind the Lipstick Index makes sense. When the economy is a worry, and unemployment is high, people downgrade their purchases, from expensive brands to cheaper ones, or luxury products to generic. Small indulgences substitute for bigger items we can't afford, and we engage in purchasing behaviors that boost our morale: we get a new haircut, go to a movie that takes our mind off our tanking 401(k)s, maybe mix up a tall (and heavy) cocktail to make us forget there's a recession at all.

But on its own, the Lipstick Index is superficial, trivial—and frankly, just not believable. Sure, persuading women to look their best as the world crashes around them might have worked 70 years ago, when, during World War II, cosmetics company Tangee touted lipstick as a way for women to "put on a brave face" and cosmetics sales increased 25 percent. It may have even kind of worked in the last recession—though beauty analysts will note that there were other factors at play then, too: such as big new product campaigns and the growing popularity of lip gloss, then still new to the market.

But this time around, the Lipstick Index just won't work—and it's not just because we're more liberated that we were during the Great Depression. "I think the Lipstick Index has held pretty well in past recessions, but this one is unique ... it's more severe than others," says Jennifer James, a consultant with the market research firm GfK Roper. "It's not just inflation, it's not just housing, it's a combination of everything."

James' firm recently surveyed some 2,000 Americans about how the recession is affecting their values, and found that—of all the things people are scrimping on—"looking good" was the thing they were cutting back on the most, its importance down by 10 percentage points from 2007. Some women may still see looking good as a necessity in the working world, but the majority of Americans, says James, are scrutinizing everything they buy, down to purchases that are less than $5. "So when you think about lipstick, which is usually in the $5 to $10 range, it's becoming something that has almost become a luxury," she says.

Statistics from the NPD Group, which tracks department-store cosmetics sales, appear to back that claim. Over the last year, lipstick sales have dropped by 9 percent, while even foundation—the new "index" indicator—is down 1 percent from 2007. Department-store cosmetics sales as a whole are down by 3 percent from last year. "The beauty industry tends to be resilient," says Karen Grant, NPD's senior global beauty analyst. "But in this economy, the Lipstick Index doesn't really work." Amen. So let's please stop using that buzzword.

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