Actualis



June 2009
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The recession’s sweet nothings

A recession sometimes affects consumer behaviour in strange ways.

It seems not everything has been said about the recession that ails us. Have you ever heard of the “lipstick” index? Look at the table below and see if you can spot a trend.

Times are hard … spoil yourself a little

The trend is the “lipstick” index, a phenomenon that was first observed during the Great Depression and that re-occurs with each economic downturn. Simply put, the phenomenon is as follows: the more difficult the time, the more consumers tend to buy small luxuries – cosmetics, lipstick, ice cream … Strange? Not really. Now, there are luxuries and there are luxuries. It’s not the major brands that benefit from the “lipstick” index. It’s the house and discount brands.
In short, we spoil ourselves … but at a small price.

From the ‘lipstick” index to the “latte” effect

The opposite side of this phenomenon is evident in the sales of real luxury items. For example, those fancy coffees we pick up on our way to work. At $4 for a grande latte, many restaurant chain customers are discovering that their morning caffeine fix is costing them more per litre than the gas they’re putting into their SUV! In fact, Starbucks has become a symbol of this “latte” effect. Last summer, the chain announced that it was closing more than 600 of its stores.

In much the same way, high-end cosmetic manufacturers are currently reporting lower profits, but not the manufacturers of less expensive cosmetics …  In short, when the “latte” effect is combined with the “lipstick” index, one thing is for sure: we’re not out of the recession yet!



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