Beware, the lipstick factor will not protect all

By Simon Pitman

- Last updated on GMT

Related tags: Luxury beauty, Cosmetics

With everyone banging on about how well positioned the personal care market is in the current economic downturn, it might be easy to imagine that the sector will have a relatively soft ride. But will it?

Hands up those who have had enough of hearing about ‘the lipstick factor’? Are we being a bit smug here? Or does anyone think that all this talk might eventually be thrown back in our faces?

As the global economy continues to look increasingly unstable, one category of the industry does look shaky - luxury cosmetics and fragrances.

The lipstick theory is based on the proven fact that, as an economic downturn kicks in, consumers move away from major purchases such as cars and furniture, and shift towards buying less expensive items such as lipstick or fragrance as a cheaper way of cheering themselves up in gloomy times.

Lipstick theory: tried and tested

This theory has been tried and tested. During the great depression and the worldwide recession of the early 90s, sales of certain cosmetic products actually rose, helping to protect the industry.

However, protection is not likely to be universal. During the good times ‘dead wood’ can be easily carried, but when things start to bite, the days of the least healthy businesses will be numbered.

In the UK, which was the first major economy to feel the effects of the downturn in Europe, cosmetics contract manufacturer Budelpack Cosi has become the first major victim of the downturn, having announced the closure of its manufacturing plant in South Wales two week ago, with a total loss of around 500 jobs.

But on top of the weaker businesses within the sector, there is also likely to be players who have been enjoying the good time for a long time that will start to feel the heat.

White collars workers hardest hit

What is feeding this phenomenon is the striking way in which individuals at the upper end of the earnings bracket have been hardest hit by the economic downturn – the socioeconomic group that traditionally make up the vast majority of luxury beauty purchases.

Many wealthy investors have been hit hard by the apparent melt down of the financial sector, as tales of life time’s savings being wiped on account of stock market speculation become innumerable.

Likewise, to date job losses have mainly affected white collar workers – employers in the financial, insurance and investment sectors - again a large group of workers with the sort of spending power that luxury beauty players have traditionally targeted.

The luxury cosmetics category has enjoyed a period of unprecedented growth, but with spend in the luxury market as a whole likely to be hard hit in the coming year, many of the players that boomed in this category will be affected.

Will luxury beauty grow in 2009?

In the five years up to 2007 the market for luxury beauty products in the US grew by 17 percent to reach just under $9bn, according to Mintel, but with the market for luxury goods predicted to contract by 7 percent in 2007, it seems that we are in for a sharp about turn.

Indeed, as the indications that the good time are over for luxury beauty makers, it seems that the hardest hit are likely to be the key markets of North America and Europe.

These markets have consistently provided luxury personal care players such as LVMH, Clarins, Chanel, Estee Lauder and Lancome – L’Oreal’s luxury brand – with the solid foundations that have supported global empires.

Doubtless consumers will be turning to beauty products to cheer themselves up during these increasingly depressing economic times, but lipsticks for $100? Perhaps you might want to knock a zero of that figure. Or maybe even two.

Related topics: Business & Financial, Market Trends

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