Home >Market Analytics >The famed Lipstick effect is now playing out in India

Indian women are increasingly going for low-value indulgences, such as buying makeup and personal care products, even as they postpone expensive purchases amid the pandemic, a pattern of consumer behaviour that business executives and economists have termed the lipstick effect.

Companies such as Hindustan Unilever Ltd, the owner of the Lakme brand, and Nykaa have reported a surge in cosmetics and personal care sales amid weak economic activity.

Former Estee Lauder chairman Leonard Lauder coined the lipstick effect term following the dot-com bubble burst that sent the US economy into recession in 2000. Lauder noticed that his firm managed to sell more than usual quantities of lipstick despite the recession. Since then, the lipstick effect is referred to as the phenomenon of consumers spending money on small indulgences during times of financial crisis.

Sanjiv Mehta, chairman and managing director of Hindustan Unilever Ltd (HUL), told analysts on 22 July that the company’s premium personal care products grew at twice the pace of the rest of the portfolio in the quarter ended 30 June.

“During this entire second wave of the pandemic, we continued to drive a lot of linear portfolios extremely well where the premium part of the business has grown at twice the speed, compared with the rest of the portfolio," Mehta said.

HUL’s beauty and personal care revenue grew by 13% from a year earlier in the quarter ended 30 June.

Beauty and personal care website Nykaa, which retails premium personal care brands, reported a surge in sales across categories.

In an interview, Nykaa founder Falguni Nayar said that the company’s sales have steadily risen during the months following the pandemic outbreak.

“We attribute the rise in demand to the lipstick effect, which is distinctly visible across cities and towns," Nayar said.

Beauty brand MyGlamm, too, said it saw an increase in demand for luxury and premium products during the pandemic.

Sales of lipsticks of the Manish Malhotra Beauty range, exclusively sold by MyGlamm, doubled this past year; even MyGlamm’s premium range of lipsticks has seen an increase in demand.

While the company has seen demand in the personal care category surge by 50% since last year, demand has gone up between 20-75% across product categories.

“MyGlamm’s target audience is females from 16-35 years. However, the age profile that purchases our premium range lies between 25 and 32 years. The 16-22 years bracket is also appearing on the radar of the premium or luxury market. The older cohorts of this group are just entering the workforce," said Darpan Sanghvi, founder and chief executive officer, MyGlamm.

The company last week raised 355 crore as part of its Series C financing round led by Accel Partners, along with participation from existing investors, including Amazon.

Just as the purchase of a new lipstick gives women a feel-good factor, in that sense, any indulgence by a consumer during an economic crisis can be termed as the lipstick effect, said Yuvika Singhal, an economist at QuantEco Research.

“The first lockdown heavily curtailed consumption in both non-essential goods and services as India imposed the most stringent lockdown globally. The impact of this was a rise in spending on products related to health and personal care, home improvement, electronics, apparel, among others—in a reflection of the classic ‘lipstick effect’ taking hold. As the economy began to ‘unlock’, consumers were, however, quick to spend the accumulated ‘forced savings’ on discretionary goods such as automobiles, white goods, etc., to satiate their pent-up demand. Services, too, saw a gradual but incomplete recovery as infections remained low over the third and fourth quarter of FY21," Singhal said.

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