The Lipstick Index

In finance, there is no crystal ball and analysts scrutinize all the elements of our daily life in search of clues about the next moves of the markets and the future trend of the economy. And experience teaches that an increase in lipstick sales almost always corresponds to a worsening economic climate. 

For example, in the recession of the early 2000s, after the tragedy of 11 September, there was a surge in revenues for the cosmetics multinationals, which recorded double-digit increases in their turnover, in the order of 11%. In this case, however, it should be remembered that in 2001 there were a number of innovations in cosmetics, including lip glosses – a relatively new category at the time – and this certainly encouraged the positive trend. However, it was then that the chairman of Estéè Lauder came up with the correlation between the conditions of socio-economic uncertainty and the consumption of inexpensive beauty products.

In the same decade, after the bankruptcy of Lehman Brothers and the subprime crisis, there was a repeat of the phenomenon, although lipstick had a 'rival’ back then – nail polish – with which it competed for the primacy of (small and futile) pleasure preferred by consumers. 

And going further back in time, economists have noticed that even in other periods of recession, lipstick enjoyed a golden age. For example, a hundred years ago, during the Great Depression of 1929, as industrial production fell by 50%, women rushed to buy more makeup than usual. In short, the female public took the advice of Coco Chanel – who knew her stuff when it came to fashion – quite literally: “If you are sad, If you are heartbroken, make yourself up, dress up, add more lipstick and attack.” 

And thus, lipstick has earned the fame of financial indicator for predicting negative moments for the markets and for the economic mood in general. In fact, it has been understood that at the basis of this economic thesis, there is a psychological factor: being short of money is undoubtedly discouraging and the tendency among consumers is often to buy something that they think might cheer them up a bit.

Indeed, even from a sociological point of view, lipstick has always played a real role in history, being associated with acts of defiance and liberation, as well as a weapon of seduction and, for the assertive woman, an expression of her own personality. Let's get back to today: while inflation is surging, statisticians have noticed that lipstick resists rising prices. The fact is that it has a large profit margin: one tube generally costs industry 2.50 dollars to produce but can reach 35 dollars in the stores. Thus the company NielsenIQ explains the fact that, while the prices of consumer goods in the United States have increased by 8%, beauty products have gone up by just 4%. The fact that the increases are small certainly encourages consumers to spend more. 

However, lipstick is not the only ‘unconventional’ index: during the 2008 financial crisis, the term Foundation Index was coined. At the time, it seemed that women prioritized the need for flawless skin. This time, however, it is perfumes that are the privileged observers. Sociologists claim that this is the result of the new habits among consumers who, stuck at home during the lockdown, had more time to devote to personal care. The numbers speak for themselves: last year, sales of fragrances for men grew by 21% compared to the previous year. 

Given the changing times, we can no longer refer to the Hemline Index, born in the era of the Great Depression, because customs have evolved: a hundred years ago, they realized that the shorter the hemline, the better the trend of the economy. Forty years ago, The Economist devised the Big Mac Index instead: the price of the most famous fast food in the world was considered as an indicator of the purchasing power of global currencies. Finally, another parameter taken into consideration is the Manheim index of used cars, which follows the principle according to which consumers spend more on used cars when economies are strong and less when they are wobbly. But the concept is that, whilst you can go without changing your car, you can’t be without a new lippy. This is why the best-loved women’s cosmetic is the index most considered and – let’s face it – most admired.