When budgets get tight, there’s nothing a tube of lipstick can’t resolve. Or at the very least, that’s what economists appear to consider. Even when individuals are scrambling to avoid wasting each final penny, the “lipstick effect” has proved repeatedly that consumers will bask in small luxuries as a compromise since they will’t spend on huge ones.
Cosmetics big Sephora couldn’t be happier about it.
The LVMH-owned chain, which carried out “exceptionally” in 2023, was the French conglomerate’s quickest rising section by gross sales at a time when luxurious spending has been on a rollercoaster experience. Sephora contributed to a 76% revenue rise within the selective retailing section, which incorporates Obligation Free outlets and raked in €17.9 billion ($19.4 billion) in gross sales final 12 months.
Now, Sephora is eyeing extra development within the coming years as folks proceed spending on its make-up and skincare merchandise, the corporate’s CEO Guillaume Motte stated.
“I think that Sephora has the potential to reach €20bn in sales… [and] the reality of our 2023 performance confirms this dream, and even tells me that we will undoubtedly reach it sooner rather than later,” Motte advised the Financial Times in feedback printed Tuesday.
The Sephora chief additionally added that the “lipstick effect,” a time period coined in 2001 by Estée Lauder inheritor Leonard Lauder to explain how folks boosted lipstick sales during times of financial downturn to deal with themselves in small methods, had an element to play in Sephora’s heyday.
“We have a product that makes people happy, an accessible product. Are we going to have explosive growth? The answer is no. Am I concerned? The answer is also no,” Motte advised the FT. He added that a lot of 2023’s growth was pushed by in-store gross sales as folks bought to expertise completely different manufacturers on show at Sephora shops.
Representatives at Sephora didn’t instantly return Fortune’s request for remark.
LVMH vibrant spot
Sephora was clearly a bright-spot for LVMH by means of 2023—the French behemoth’s head, Bernard Arnault, described its development “remarkable” throughout an earnings name in January. The wonder chain’s efficiency is a distinction from the height pandemic years when low foot site visitors in Sephora’s retail areas damage its income and profitability (keep in mind, that’s when luxury demand boomed).
In 2022, as lockdowns had been eased and folks started venturing out of their houses once more, Sephora’s sales rebounded. Apparently, that’s additionally the 12 months inflation hit record highs (at the very least in current reminiscence) and drove up the price of dwelling, pointing to the “lipstick effect” in motion. Inflation has cooled since, however rates of interest stay elevated and consumer confidence continues to be on shaky floor.
“Being short of money is psychologically daunting for people and the way to make yourself feel better, even if it’s ever so little, is to purchase something that you think will cheer you up,” Jansson-Boyd, affiliate professor in client psychology at Anglia Ruskin College, advised the BBC in 2022.
Sephora isn’t alone within the rising tide that’s rising gross sales of magnificence merchandise. Take the corporate’s American rival Ulta Magnificence, as an example—its gross sales have soared through 2023 as consumers are “ready to celebrate” amid a difficult financial setting, CEO Dave Kimbell stated.
To make certain, the idea of lipstick gross sales and financial well being being inversely proportional might be laborious to interrupt down within the broader magnificence class. The financial indicator additionally didn’t actually apply for the Great Recession of 2007-2009, and has had competitors with different merchandise like face masks lately.
Whether or not tubes of lipstick will reign supreme in future financial crises stays to be seen. For now, at the very least, folks clearly aren’t shying away from splurging a little bit on their favourite magnificence merchandise.
