What Is the Lipstick Effect and What Does it Mean for Your Beauty Biz

The beauty industry is living in interesting times. We hunkered down when the pandemic shut down salons, spas, and other in-person services, and when masks became the new normal we traded out color-popping lips for dramatic eye looks. Now that the U.S. seems to be on the brink of another recession (or already deep in one, depending on which economist you ask) brought on by too many economy-destabilizing events to list, you may be worried about the future of your own beauty business.

Here’s the good news: Even though it looks like the nation and the world at large are in for some extended economic difficulties, your beauty business is probably better suited to keep the wind in its sails than most of its neighbors. You’re about to be the beneficiary of something called the lipstick effect, and if you aren’t already familiar with it, you should start preparing now for how it will affect your business.

The lipstick effect, also referred to as the lipstick index, is an economic indicator first posited by former Estée Lauder chairman Leonard Lauder. Though Lauder named it in reference to the surging lipstick sales that he observed during the 2001 recession, he’s since clarified that the concept should be read more broadly: “We have long observed the concept of small luxuries, things that can get you through hard times and good ones,” Lauder told Time. “And they become more important during harder times. The biggest surge in movie attendance came during the 1930s during the Depression.”

In short, when money gets tight and there’s no room in most budgets for larger luxuries, people still need to give themselves a little something to keep going. The principles behind the lipstick effect go beyond the beauty industry, as Lauder pointed out, but they’re still especially encouraging for beauty businesses staring down an incoming recession.

So what do we say to the gods of recession, inflation, and pandemic-driven supply chain restrictions? “Not today.”

If you’ve been in the beauty business for any length of time, you already know that it’s about more than weekly and monthly appointments that keep clients looking good. It’s about being a beloved part of client’s lives, forming a cornerstone of communities and support networks. Keeping those connections alive in tough economic times doesn’t mean you have to go into the red, but it does mean you should start thinking about what kinds of changes you can make to meet customers (and their bank accounts) where they are.

Think about the menu of services you currently offer. Which offerings are the big luxuries, the ones that people save and plan for months to have done? If the recession continues unfolding as it’s predicted to, these are the types of services most likely to start dropping off your appointments calendar. Which services are the little luxuries that regulars get on a weekly basis, and that passers-by from the street are most likely to drop in and try on impulse? These are the offerings that will likely remain the most stable.

That’s all good to know for anticipating what kind of impact the recession is likely to have on your bottom line. But don’t stop there. Knowing what we do about the lipstick index, start thinking about how you can make those big luxuries a little more affordable: How can you make the fur-coat equivalents on your menu cost more like the little-splurge-won’t-hurt luxury lipstick equivalents?

Could you trade out a few costly products from a skincare routine with more affordable ones, or simplify a treatment so it only requires one employee’s attention instead of two? Remember, this isn’t about trying to get one over on clients by quietly scaling back the experiences they’re accustomed to. You should be upfront about the economy-friendly changes you’ve made to your menu, because you made them to ensure clients don’t ever have to stop being good to themselves. The basic human need for self-care bears no correlation to whether the big economy line is going up or down.

We live in a more interconnected world than ever before. Remember that scene in Jurassic Park where Jeff Goldblum explains how chaos theory works, with the flap of a butterfly’s wings in Beijing eventually leading to rain instead of sunshine in Central Park? The modern business world works the same way, as you may have already experienced when a pandemic-driven factory shutdown on the other side of the world led to regular clients complaining about their favorite products being absent from your shelves.

The lipstick effect means your beauty business is starting out on more solid ground than most as the recession begins, but that’s the beginning of the story, not the end. The business choices you make now could spell the difference between just barely getting by, or emerging from the recession as an even more essential part of your community than ever before. Start preparing your business today, and you’ll have a clientele grateful for all the little ways you helped keep their part of the world looking and feeling better in tough times.

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