The term "Lipstick Index," coined by Leonard Lauder (son of Estee and chairman of the board of Estee Lauder), was used to describe a phenomenon that lipstick sales jumped during economic downturns. That lipstick sales can be used as an economic indicator has since been discredited, but the catchy name stuck and is still thrown around. L'Oreal recently coined another term, the "Foundation Factor," after the company noticed a 15% jump in foundation sales as women were apparently seeking perfect skin tone over a perfect pout.
Nevertheless, cosmetics remain an affordable indulgence during tough times. When a woman feels as though she must be conservative with her purchases and spending, a $10 lipstick provides a safe and particularly guiltless release, especially when compared to a $800 pair of pumps. "A recession does not change people's insecurities about the way they look," says Alexandra Richmond, a beauty analyst at Mintel. "They may have given up their long-haul holiday this year but the reality is make-up is a small indulgence in the scheme of things."
At the end of August, L'Oreal reported higher than expected profits for the first half of the year, and shares jumped 6.2% on the news. Although sales of cosmetics are up, sales of premium or luxury brands are down. Consumers have traded down in some categories to less-expensive drug store brands. In related news, the company has also signed Cheryl Cole as the new face of its brand.
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