Bizarre trend proves Australia is in trouble as ‘lipstick effect’ takes hold

They’re tiny, cheap items we throw in our trolley without much thought – but they could prove just how bad things are going to get.

It was seen during the Great Depression, and in the recessions of the early 1980s, early 1990s and early 2000s.

And now, as Australia and the world teeters on the brink of another economic downturn, the “lipstick effect” might be about to rear its head once more.

What is the ‘lipstick effect’?

It’s a fanciful name given to a very real economic trend – when times get tough, people cut back their spending, but they find it hard to resist little treats, like cosmetics, to perk themselves up without breaking the bank.

As a result, spending in retail categories like cosmetics tends to soar during troubled times, and it’s been a trend repeated throughout the decades and across the world, including in the aftermath of September 11, when Estee Lauder chairman Leonard Lauder shared anecdotal evidence of a spike in lipstick sales, which happened again during the GFC.

Is it happening again?

Earlier this month, Forbes reported that new data from global market tracking firm NPD Group had revealed sales of lipstick and other lip makeup “grew 48 per cent in first-quarter over previous year, more than twice as fast as other products in the beauty category”.

It also noted that “lipstick sales keep on growing week-by-week with prestige brands taking a bigger share of sales than the mass-market brands. Women are also picking up brighter, more dramatic colours this year, rather than muted, natural looks”.

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The "lipstick effect" is a well-known economic concept. Picture: iStock

Data from the Australian Bureau of Statistics shows cosmetics within the toiletries and pharmaceutical category topped $4.5 billion last year in Queensland, while cafes, restaurants and takeaway food services made $9.6 billion, the Courier-Mail revealed, with the publication speculating whether a spike in spending in those two categories could help save Australia from recession.

And according to research company IBISWorld, online perfume and cosmetic sales in Australia are worth $2 billion in 2022, with the industry’s market size expected to increase 5.5 per cent in 2022.

“The market size of the Online Perfume and Cosmetic Sales industry in Australia increased faster than the Online Retail sector overall,” IBISWorld noted.

What does it mean for Aussies?

While those statistics alone doesn’t prove the trend is repeating again, ANZ senior economist Adelaide Timbrell told news.com.au the lipstick effect was a well-known phenomenon within financial circles.

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

“People are not buying as much of the big stuff as they usually would, but they are comforting themselves with little 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 observed during previous economic downturns.

And she said based on troubling signs for the economy in the months ahead, it was reasonable to expect the trend to pick up again locally.

The risk of recession is growing along with a boom in cosmetics sales. Picture: iStock

“When you look at the spending outlook for the rest of the year, there are some headwinds for people like increases in interest rates that will hit anyone with a mortgage or debt, very strong inflation which means groceries and electricity bills are getting more expensive, and we’re also seeing falling home prices at the same time that bills are more expensive,” she said.

“But while overall wealth may not be growing, on the other side we’re seeing continuing low unemployment, so even though people may not see their pay cheques keeping pace with the rising cost of living, it’s less likely than usual for that pay cheque to go away.

“So while people may not be buying those bigger ticket items they did during booms like cars, home renovations or big household appliances, we may see with a low unemployment rate and solid wage growth a little bit more growth than we would otherwise see in smaller things like takeaway and smaller luxury items.”

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

“At times spending was much lower, but we also saw in specific categories that people were willing to spend – for example in lockdown we saw sports equipment and home gyms and weights spike because people didn’t want to go crazy in their houses,” she said.

“We would expect total spending to slow as the economy slows in response to global economic growth slowing and interest rates rising, but we may see a few little categories win out.”