THE LIPSTICK INDEX

Cosmetic category performance during economic slow downs

What is the Lipstick Index?

The lipstick index is a term coined by Leonard Lauder, chairman of the board of EsteeLauder, used to describe increased sales of cosmetics during the early 2000srecession.

Lauder made the claim that lipstick sales could be an economic indicator, in thatpurchases of cosmetics – lipstick in particular – tend to be inversely correlated toeconomic health. The speculation was that women substitute lipstick for moreexpensive purchases like dresses and shoes in times of economic distress.

Lauder identified the Lipstick index as sales across the Estee Lauder family of brands.Subsequent recessions, including the late-200s0s recession, provided controvertingevidence to Lauder's claims, as sales have actually fallen with reduced economicactivity. Conversely, lipstick sales have experienced growth during periods ofincreased economic activity. As a result, the lipstick index has been discredited as aneconomic indicator.

What's changed?

In the 2010s, many media outlets reported that with the rise of nail art as fad in the English-speaking countries and as far afield as Japan and the Philippines, nailpolish had replaced lipstick as the main affordable indulgence for women in place of bags and shoes during recession, leading to talk of a nail polish index

The Lipstick effect - 2013 category mapping during recession

Make up category feature in the growth list

Nail Polish & Mascara witness high growth whereas Eyeliner got a small growth lipsticks however do not feature in this visual.

NOTE: Industry dynamics during the 2008/2009 downturn. Total category growth among 38 developed markets during 2008/2009.The size of the bubble represents the intensity of the effect within each sector. The larger the bubble, the further away thecategory growth rate is from the start of each sector growth bands.

IS NAIL POLISH THE NEW LIPSTICK?

LipstickBeauty and

Personal Care

USA -6.8 -1.5

United Kingdom 7.9 3.5

France -0.5 -0.2

Sweden -3.6 -1.1

Italy -2.3 0.6

Spain -1.2 -0.9

Germany 0.3 2.6

Note: Lipstick and Beauty and Personal Care Growth in 2009. Market sizes, retail value RSP, US$million, fixed 2012 exchange rates, year-on-year growth (%).

Rise in other beauty categories

In 2009,

• Lipstick sales in the US dropped by almost 7%.• Only consumers in the UK maintained their spending

on lipstick that year, • While sales in Italy, France and Spain declined

Same effect, different categories

Nail polish could be considered the new “lipstick” of the last recession.

• 2008/2009, nail polish was the fastest growing category in the global beauty and personal care industry

Note: Average growth among 38 developed markets across selected periods. 1999-2000 and2008-2009 were recession years in most countries, while 2001-2007 represents the period of strong economic growth.

In 2008 – 2009Cash-strapped womenrediscovered nail polish as an affordable fashion accessory and a morale booster

Nail polish compared to non-grocery retail sales

Between 2008 and 2011,nail polish achieved double-digit retail sales growth in the US, Germany, the UK and Italy.

Key takeaways

The one thing that all of these

recession-proof items have in

common is that they offer instant

gratification and are generally

affordable.

“affordable” does not

necessarily mean “cheap” or “the cheapest”, but rather the

opposite

The lipstick effect theory is

therefore all about shopper defined affordability

the lipstick effect

THANK YOU