What is the "lipstick effect", and why is it important?

[Dien Rice]

In summary...

• In hard times, people don't want to spend the big bucks for luxuries.
• However, they still want luxuries to help "cheer them up".
• Hence, they buy more inexpensive "small luxuries" - like "lipstick". That's why it's called the "lipstick effect".
• For example, sales at L'Oreal (a cosmetics company) in the first half of 2008 were UP by 5.3%.
• This effect can be traced back to the Great Depression - so it's been happening in every downturn for a long, long time.

This suggests that a good business at the moment could be inexpensive "luxuries"!

Anyway, here are some articles to check out...

http://www.wordspy.com/words/lipstickeffect.asp
http://www.telegraph.co.uk/finance/f...mists-say.html
http://www.theage.com.au/news/lifean...794327006.html
http://www.huffingtonpost.com/meredi...t_b_92597.html

It's an example of the type of business that can prosper in a "downturn"...

Any other ideas or examples?

Dien

Hmmm....

I don't know. Seems kinda dubious to me. Like someone is Playing with numbers and stuff.

For instance: In hard times people don't buy big items they buy small luxuries.

Ok. So interest rates rise. Um, yeah people won't buy a big priced item. Because, hot dang, it will cost more due to higher interest. So do they top spending? Of course not, they just buy stuff that doesn't require interest. Money still flows, right?

Point is, people still Want to buy the big items. It's just the High Interest prevents them.

So LOreal has increase in sales.... compared to???? Same time previous year? Fine, how about the year before, and the year before that and the year before that and so on? Isn't it the goal of all business to have Increased Sales from one year to the next?

It's not like LOreal would have had sales losses for years but now, looky look, sales increase heralding the bad times.

Sorry, without knowing what they compare their sales numbers to, nor the historical sales record, the claim linking the two is dubious.

Sales Increase. What's that even mean? Gross revenue increase? Net profit increase? SKUs sold increase?

Hey, lipstick at half price, come get a bucket full.

Boss, we increased sales.

Yeah, but we didn't make as much money dummkopf.

Or...

Boss we increased sales.

Yeah, and made more money thanks to our new whizzbang manufacturing process that lets us halve prices while increasing profits. Of course, all the articles we paid to have run in the brainwash women's mags that advised lipstick helped a treat. And Operah's suggestion to wear lipstick was dy-no-mite! (tip of the hat to J.J.)

Or

Hey, Boss, good idea to lower prices to get rid of our overstock and thus Increase Sales

Dubious claims.

So Japanese women buy more accessories instead of new clothes. And?

Have you seen the fashion? It sucks. Bad! If I was a woman I'd be keeping my older stuff and wearing it instead of buying the Crud that's foistered into the women of today. Crud like grandma clog heeled shoes, tops that go just under the breast line to be worn over tops that go just past the hip line, while wearing lowrider jeans and revealing some bloated belly.

Geeze. Go visit a shopping mall. You'll see all the horrid female fashion you can handle. The Jap women are voting with their wallets. Good on 'em.

This "Global Financial Crises" da da daa - film at 11, doesn't seem to be hurting the mobile phone sellers. And Wow Sight and Sound and JB HiFi are raking in the moolah la la to.

I went to Ikea on Xmas eve to buy some stuff for Us. Safe in the knowledge that, X-Eve at Ikea is usually quiet. Boy, was I wrong. It was busy busy beaver. Even the long time staff were amazed at all the money being spent by all those people on X-Eve during the "Global Financial Crises" da da daa film at 11. And when you go to Ikea (only one in the city so Everyone travels quite a distance) you don't go there to spend $5. You buy BIG. If all you spend is a $100 that's a small buy.

Interesting Observation: On the way back from Ikea, not many people looking at cars in the car yards, but the Motorcycle yards were flatout busy. Busy like a one armed wallpaper hanger, or a one legged man in an ass kicking contest. Busy as, Bro.

That's Bro and not Bros - the pop due from the 80s whose member Luke plays elven Prince Nuada in Hellboy II.

Onward. Odd hey. Gas goes down, bike sales go up. Wouldn't just be natural ebb and flow and trending. Babyboomers reliving their youth? Dirt Bike Heros and Crusty Demons wouldn't be getting people interested surely not. Nah, has to be the "Global Financial Crises" da da daa film at 11 stopping people buying Expensive cars and buying Cheaper bikes.

I just wish someone would tell all those people at Bunnings Warehouse that there is a "Global Financial Crises" da da daa film at 11, so it wouldn't be so darn crowded when I just want to buy a packet of nails.

Hmmm. I wonder if we compare sales of Camcorders to years ago what we'll find. Or how about BIG Screen TVs. Now vs years ago when they were so darn expensive you had to sell your first born into slavery just to afford the downpayment. Mmmmaybe, I can say due to the Global Financial Crises" da da daa film at 11, people are buying LCD and Plasma TVs to Cheer Themselves Up.

HEY. Did you know that Gun Sales have increased. They did so after 9/11 (must be cheering themselves up, right?) and also before and since the election. I don't think Darth Obama's anti gun stance has anything to do with it. Must be people cheering themselves up so they can enjoy shooting as a hobby, after all it is fairly cheap compared to some other hobbies.

You know that Andre Rieu guy? His sold bulk loads of tickets. People cheering themselves up at $300+ a pop for a ticket instead of seeing much cheaper and free entertainment elsewhere due to the Global Financial Crises" da da daa film at 11 - or - due to all the free press he'd received about his extraordinary set - the largest in the world and a one-to-one scale of a castle?

Now, if I've convinced you it's not about Lipstick, Good. That'll be fewer people buying lipstick when I go to get my usual supply of Diamond Sparkle pink.



I just wish someone would tell the pantyhose makers about the Global Financial Crises" da da daa film at 11 so they'd lower their prices. My pantyhose bill is humongous.

Michael Ross

"I don't know. Seems kinda dubious to me. Like someone is Playing with numbers and stuff.

So LOreal has increase in sales.... compared to???? Same time previous year? Fine, how about the year before, and the year before that and the year before that and so on? Isn't it the goal of all business to have Increased Sales from one year to the next?"

Take the time to read the information provided by clicking the links. It's not just L Oreal.

"It's not like LOreal would have had sales losses for years but now, looky look, sales increase heralding the bad times.

Sorry, without knowing what they compare their sales numbers to, nor the historical sales record, the claim linking the two is dubious. "

Read the information in the links. It says they (L Oreal, Este Lauder) realized an increase in sales during what we in the U.S. call "rough times". 1930's, 1980's, 9/11, etc.

Sales Increase. What's that even mean? Gross revenue increase? Net profit increase? SKUs sold increase?

Sales Increase. That means, plain and simple, they have sold more units during one period of time, than another. If I land two new clients next week, my sales have increased. PERIOD.

They didn't say "Gross Revenue Increased, or Net Profit Increased, so, that must mean UNITS or SKUs (Stock Keeping Units) as you prefer to call them, increased.



Pete

[Dien Rice]

Originally Posted by Pete Egeler

Take the time to read the information provided by clicking the links. It's not just L Oreal.

Hi Pete,

You're right - I think the answers to most of Michael's questions are in the links. I didn't have the time to write a full post just now, so I just wrote a quick summary and included the links for further info.

However, there are other items which sell well during recessions. The news is full of "doom and gloom" - but clearly that's not the only case, there are always exceptions. Anyone else have any other suggestions? Let's try to be constructive.

Best wishes,

Dien

Gambling (ie lottery)
Alcohol
Make up ie lipstick

I saw a review of industries that thrive during recessions about 2 years ago. According to the news the other night, apparently the above hold true.

Pappy

Pete,

Thanks for answering.

I did take the time to read the links. I know it's not just LOreal. And I know they Said it happened before. But so what... didn't their business increase any other time this last century?

It's not as if their business only increased during a Rough Time. As I said, businesses are in business to increase business on the previous year's results. Constantly. To only talk about the increases during selected times is misleading and paints a false impression.

Now... to YOU sales increase might mean "they have sold more units during one period of time, than another", but to others it could mean something different. You know, people don't always say what they mean, do they? Which is why I say "what's that even Mean"?

So if we take it that... they had a Sales Increase - they sold more units. Then from that we can imply... because they didn't say they increased Profits... that those sales were generated from Discounting. The Discount increased sales but not profits.

That being the case, then the Increase is something THEY are generating and Not a condition of the time, isn't it? And hence my skepticism.

Michael Ross

Having worked for several manufacturers and done lots of consulting for others, I have always experienced "sales" as a purely dollar (or pound, etc.) figure -- not units. Without the derived revenue figure, sales numbers are meaningless. For example my company sold 5 billion screws two years ago. Last year we sold 4.99 billion screws and two Boeing 747s. Sales units are down, but sales dollars are way up. But until we calculate our cost for the 747 (and the screws, too) we really don't know if we had a relatively good year (revenue) or not.

So without revenue numbers, the other figures are less meaningful.


- Kevin

Dien,

This one falls far from the 'lipstick' category, but it was interesting to watch a Vancouver, BC news report a few nights back on a group of parents camping outside of a building last Friday, intent on being among the first 44 people in line Monday morning.

Mind you, this is during the worst snow storm to hit Vancouver in maybe 50 years. And, this is a group of affluent parents pitching tents and bundling-up outside on the pavement.

Because of the extreme weather conditions, the building owner decided after a few nights to let them camp inside the building.

Anyway, the parents were out there hoping to get a spot for a son or daughter in a local primary school. And these same parents have been paying big bucks for their kids education. Especially to learn French.

So my two cents would be primary education and related services that seem to be holding up well, at least in some areas.

Vancouver also hosts about 40,000 ESL students every year. And is unlikely to see much of a drop-off in the cash these foreign students are spending.

Which reminds me of a friend of a friend from Japan who used to shop at a local goodwill store. He could spend maybe $30 on used t-shirts, pants, shoes, you name it, to sell back home in Japan for $800 and up. It was amazing to see the stuff that would pay for his trip and then some. Like a smaller pair of Levis with a particular large V. Whatever, I doubt this 'fashion' market has slowed down much these days either.

Cheers,

Rod