Let’s get ourselves familiarized with the lipstick effect. It happens during the times of economic downturns and recession, when consumers start to spend on small indulgences, something as small as lipstick, especially when they do not have enough money to splurge on other big luxuries.
It won’t be wrong to say that globalisation and social media have significantly changed consumers’ spending patterns over the years. Luxury is not just confined to the niche segment only.
People who get to save a little, try to spend on luxury items which gives them a sense of high utility. At its core, this effect speaks to a very basic aspect of human psychology, self-expression and desire to comfort which make it a little paradoxical.
It is a simple pleasure that breaks the socio economic barrier, giving a sense of confidence and self-assurance. Since the term luxury is sometimes drawn on the principle of magic and art to feel a sense of exclusivity and desirability, it becomes difficult for the consumers to let go of it.
We can somehow link it with the income effect. Unlike normal goods where increase in income leads to higher demand, the demand of inferior goods increases as the income shrinks and lipstick effect is one such phenomenon. Once the price of an air ticket rises that a consumer can no longer afford, they like to spend it on a good which is in comparison small, falls in their budget and still luxury.
Once such example is the restaurant segment. It is not ignorable that we see fancy restaurants bustling with diners all the times amid the sky-rocketing inflation, which is also the reason why restaurant industry is one of the most fast growing industries of Pakistan.
No wonder, by 2029, the hotel and restaurant related spending will reach around $5.6 billion. The eateries are mostly located in posh localities of the city, that not just offer good taste but gourmet fine dine experience to the visitors who never mind to pay a few extra bucks for the luxury experience they get.
This industry is shaped by the changing life style patterns, where we actually observe the lipstick effect and that has incredibly altered the dining out trends. Even though it is a heavily clustered market, investors still feel confident to get in to this domain without being afraid of the tight competition they might face.
It’s not long ago when dining out was a concept confined to upper class only in Pakistan. Now ironically, despite having sky-rocketing unemployment and continuous stagnant economy, perhaps restaurant industry is one of the few industries that has managed to stay least affected by such trends. It was just Covid when the industry had to face unprecedented challenges but it successfully managed to weather the storm. the lipstick effect in Pakistan is driven by globalization and influence of social media.
As the consumers experienced interconnectedness with the wider world out there, this particular effect found a fertile ground since affording high end luxury is a distant dream for many. That is the reason why international and local luxury brands of personal care also experienced a significant boom. The lipstick effect which was once a subject of curiosity for my economists, is now a reality of many developing and developed countries.
There are various pros of it which we can delve into. Once such is creating employment opportunities for many. As far as restaurant industry is considered, there are many qualified professional chefs in the market that have found stable jobs to practice their culinary art. Not only them, waiters and other managerial positions have provided a way of earning to many. On the other hand, many small luxury businesses have helped entrepreneurs to start their own journey. Needles to say, even the recession becomes the most rewarding time for such small companies that are into producing niche products.
The answer to a question whether we can consider the lipstick effect as a potential economic recession indicator is in the affirmative, but the answer to a question whether we can consider the boost in small luxury items’ sales an indicator of economic prosperity will be in a big ‘no’ since even during the times of stable economy, such industries prosper.
As per the statistics, the largest component of Pakistan’s luxury goods market is prestige cosmetics and fragrances. Moreover, due to the growing influence of e-commerce, it is expected that online sales will contribute 7.2% of total revenue in luxury goods market in the year 2024.
On global level, it was reported that Amazon’s sales in beauty and personal care domain rose up by 30 percent in April 2020 compared to the pre-Covid period, showing people feeding into this lipstick effect during the period of global economic recession.
The surprising fact here is that the lipstick effect, which was previously observed in developed countries is also now prevalent in developing nations like Pakistan mainly because of globalization, social media influence and urbanization.
Moreover, brands nowadays spend a significant amount on marketing and create such strategies that attract customers to own a luxury. Consumers get drawn to smaller luxuries that fit within their budgets.
Without realising it, we see that the lipstick effect has been around for quite a while and we don’t see it going away anytime.
Copyright Business Recorder, 2024
The writer is a development economist, Islamabad. She is currently working in a leading government-owned Agricultural Development Bank of Pakistan
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