The Lipstick Index
the economy is tanking. pucker up.
2008-07-01
By Donna Johnson

In measuring the health of the economy, financial experts typically rely on an index of Leading Economic Indicators.  The LEI gauges economic activity ranging in everything from stock market movement to initial unemployment claims, to new housing permits to consumer sentiment.

We haven’t scrutinized the numbers lately but unless you’ve been living in a cave with Ossama, we don’t have to tell you what they spell. The S&P 500 is erratic, unemployment is up, home sales are on life support and consumers are in a general funk—tax rebates notwithstanding.

But there’s one index that, although it hasn’t made it into the textbooks of macroeconomic theory, is gaining some traction with retail analysts in evaluating consumer spending habits during an economic downturn.

It’s called the Lipstick Index, a phrase coined by Leonard Lauder, retired chairman and heir to the personal products giant, Estee Lauder. 

Back in 2001 when the country was mired in the last recession, and Lauder was running the company, he noticed a rise in lipstick sales by 11% and overall make-up purchases increased as much as 23%. During the recession before that in 1990, cosmetics sales climbed 10%.

The premise of the Lipstick Index is that during difficult economic stretches, consumers will forego buying big-ticket discretionary items, and choose instead to justify a more manageable purchase.  And, further, that that manageable purchase will have a feel-good component attached. In other words, giving up that $100 haircut calls for a $20 pick-me-up at the make-up counter. Let’s face it, except for the essentials, most consumer purchases are based on desire and not necessity.

This cycle’s Lipstick Index seems weaker than in the past, because soaring food and gasoline prices mean that even smaller luxuries are getting axed. But through our relentless detective work we were able to uncover a few items that consumers, even in retrenchment, are making room for in their already squeezed budgets.

Pets—When it comes to Fido and Kitty, apparently there’s still some wiggle room in our wallets.

Although pet care companies are seeing a decline in hard goods like toys, collars and apparel, sales have held up for those retailers better than non-pet stores. They’re seeing less of a decline in growth than categories like human apparel, sporting goods and automotive accoutrements.

In addition, pet services like grooming, doggie day care, and kennels, now called pet hotels—complete with the occasional bedtime story—continue to perform well.

The feel-good factor: Like parents who throw money at their emotionally neglected kids, more money equals less guilt for owners separating from their pets.

Home Improvement-- Stores like Lowe’s are seeing a substantial increase in paint purchases and say that painting has become the #1 do-it-yourself project. A new paint job offers an instant face-lift and a way to personalize your space. If you can’t afford a new wardrobe, then paint your closet.

The feel-good factor: At about $20 a gallon, it’s probably the least expensive item with the most overall benefit you’ll find in the aisles.

Liquor—It’s pretty much a no-brainer, down to the last cell, that alcohol is recession-proof.  In economic terms it’s called a “non-cyclical,” meaning that whether we’re celebrating the good times or bemoaning the bad times, booze still makes it into the shopping cart.

Diverting corn and sugarcane crops into biofuel production has, among other things, pushed up the price of alcohol—by 1% in April alone.  Imbibing doesn’t necessarily decrease during recessionary times, but consumers often turn to the less expensive hooch or limit their choices to budget-friendly beer and wine.

The feel-good factor: Though Two-Buck-Chuck’s is now three bucks, you can show off your consumer savvy and still expect to get a decent buzz.

Gourmet Snacks—It’s a perennial on Oprah’s list of favorite things. Halle Berry and Bill Cosby have been known to openly lust after it whenever they visit Chicago. It’s Garrett’s epicurean popcorn. No shortage of corn availability here, as lines of lesser-known tourists and natives alike routinely extend outside the stores. Garrett’s also has shops in New York, with office delivery and is now accessible on the Web.

Add to this category blueberries, wasabi peas, pistachios and the entire artisanal gourmet cheese section of Whole Foods.

The feel-good factor: The Carmel Crisp and Cheese Mix needs no further explanation.

A struggling economy means that we all have to make sacrifices. But every now and then we can reward ourselves for showing some restraint.

Accept it or not, shopping is emotional behavior. Just be sure you’re making smart decisions you can live with. Or to paraphrase "Bitter Is The New Black," author Jen Lancaster, “You shouldn’t be carrying a Prada bag to the unemployment office.”

Donna Johnson is Giving You the BusinessSM, in an occasional column for EbonyJet.com. Send your business and finance-related questions to our e-mailbag.