👉Background: Estee Lauder is the world's second largest cosmetic company. And this company ain't small. In fact, Estee Lauder owns a bunch of other cosmetic brands like MAC cosmetics, Clinique and Bobbi Brown.

👉 What happened: Last week, Estee Lauder released their quarterly sales figures and it wasn’t quite what the market expected. Their sales have fallen by 11% to $3.93 billion thanks to COVID lockdowns in China and US retailers ordering less stock.

👉 What else: And they’re not alone. Their main rival L’Oreal has also reported slower growth. Usually, cosmetic companies hold up in a tough economy - thanks to the lipstick effect. But not this time.

What's the key learning?

💡The lipstick effect is when consumers will still buy smaller luxury items even during tight economic conditions. In a tough economy, it’s hard to afford bigger indulgences like a new watch or a holiday,  so often people treat themselves to smaller indulgences, like lipstick.

💡This has helped shield cosmetic companies from the wreckage of past recessions. This time around…. not so much. But the lipstick effect isn’t just for cosmetic items.

💡 This term is now used for any other small indulgences like fast food or travel. And while the lipstick effect is slowing down for cosmetics, fast food giants are still riding the wave of indulgence purchases.

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