In the early 2000s, Leonard Lauder, Estée Lauder’s then-chairman, noticed a curious correlation. Looking through the cosmetic company’s records, he spotted that lipstick sales didn’t drop in a time of economic distress – they surged.
Many thought the so-called Lipstick Index could act as a reliable economic indicator, the canary in a coal mine for impending fiscal gloom. The idea was that in times of financial anxiety, nervous consumers stopped buying big-ticket items and instead looked towards affordable, everyday luxuries.
With the country entering one of the most difficult operating environments since the global economic crash, does the Lipstick Index still hold true? Our survey of 2,000 UK consumers suggests that it might have had its day.
Shoppers have shown remarkable resilience over the past year. Despite Brexit woes, rising inflation and low wage growth, consumers are yet to cut back. Only a quarter of shoppers reduced their spending on retail, leisure and hospitality, and travel and tourism over the last 12 months.
Pressures are, however, emerging. Most shoppers now describe themselves as cost-conscious buyers. And in a clear signal of growing unease, 60 per cent would use a £1,000 windfall to chip away at their debt, rather than splurge on shopping, travel or eating and drinking out.
Looking ahead, consumers are unlikely to slash their outgoings, but they will become more discerning. Around half say they will stabilise their spending on retail products and eating and drinking out over the next 12 months.
At the same time, consumers across all generations are still optimistic about big-ticket items. Around a quarter say they upped their holiday spend over the past 12 months. And the same proportion plan to increase their travel and tourism spend again in the year ahead.
Doing, not buying
What has caused this shift away from the Lipstick Index? In a time of economic uncertainty, why are consumers stabilising their spend on lower-cost items like beauty products, homewares and clothes and shoes, while continuing to splash out on holidays?
It’s worth remembering that when Lauder spotted the Lipstick Index, Apple was yet to release its first iPhone and Twitter, Instagram and Snapchat didn’t exist. Over the past 10 years, these technologies have turned shopping habits on their head.
Today’s consumers crave brag-worthy experiences over everyday necessities. Shoppers have replaced buying with doing. Consumers may not be increasing their spend on beauty products, but they’re still happy to splash out on wellness retreats. The experience economy is in full swing.
This will bring challenges and opportunities. As shoppers shift their attention from products, retailers must find new ways to fit into consumers’ lives. Investing in novel in-store experiences and excellent customer service will be important routes to encourage footfall.
We’re already seeing blended, experience-led concepts appear. For example, The Bike Shed Motorcycle Club recently opened a 12,000 sq ft venue in the heart of London. Nestled underneath four Victorian railway arches lies a 100-seat café, retail space, a barbershop and event space.
The experience-led concept offers a refuge for London’s growing biker scene, but it’s not just for petrol heads. Pop down any day of the week and you’ll find a friendly, thriving scene, as regulars and first-timers drop by to shop, sip artisan coffee or browse the latest curated spaces.
While travel operators are set to become the biggest winners in the experience economy, success is not guaranteed, particularly if further sterling shifts push up holiday costs. Operators should continue to innovate. Highlighting tours and customised experiences will be important ways to pull in consumers.
In this new operating landscape, businesses must adopt truly customer-centric operating models. Gathering consumer data, watching trends and tracking shopper behaviour will deliver the information businesses need to stay relevant. The key will be to employ people with the skills to make sense of it.