The “Lipstick Index” and beauty stocks to invest in
During the last months, inflation has reached sky-rocketing values, leading to a significant increase in the cost of living; contrary to the textbook economic rationale, a possible recession is not making the sale of cosmetics products decline. Rather, in June 2022, lipstick sales went up in the US.
The Lipstick effect, or Lipstick Index, entails a negative correlation between beauty sales and the general economic trend and can be found even during the 1930s Great Depression.
The term was used by Leonard Lauder, the former CEO of Estée Lauder, that stated that the brand’s lipstick sales jumped after the 9/11 terrorist attack and the corresponding American downturn.
Similarly, in 2012, researchers in Texas found out that a downturn in the economy had a positive effect on profits in the beauty industry.
According to NPD Group Inc, in 2011 in the US, skincare, makeup and fragrance sales rose by 11% with respect to the previous years. Sales also rose by 9% in Britain and by 3% in France.
Therefore, people that have less disposable income decide to spend it on non-essential goods anyway. The main theory behind this behaviour is either that women would buy more cosmetic products to feel more attractive, or that in general buying a small luxury will not leave you completely broke.
The Journal of Behavioural and Experimental Economics in 2020 made research on CEX - Consumer Expenditure Survey (which does not distinguish between diverse beauty products) - and it turned out that during the Great Recession, women between 18 and 40 years old would reduce their spending on other categories of consumption to favour spending in cosmetic brands.
Back in June this year, the NPD Group found out that sales of lipstick and other types of makeup grew by 48% in the first quarter over the previous year, and that the biggest share was retailed by prestige brands.
Economists establish that during recessions, consumers spend increasingly either on the traditional inferior good, or the morale booster (non-necessities).
The Lipstick Index could therefore be the indicator of a possible economic recession.
Moreover, after the rebound from the COVID-19 pandemic, the new threat for Europe and the US became inflation. By July inflation had reached 8.6% in the US, and 9.1% in the UK, triggering a drastic effect on various industries.
Beauty purchases seemed on the rise, and brands were forced to up their RRPs to cover higher supply chain costs. For instance, pricing for fragrances at Ulta, Sephora and Nordstrom has increased by 12% since 2020.
According to Yahoo Finance, the cosmetics industry is a fast-growing one and generated over $500 billion in sales in 2020.
According to NPC, during the first half of 2020, the sales of makeup products declined by 24%, whereas the skincare sector was on a rise during the pandemic.
E-commerce sales grew, too, and in the first quarter of 2021, Ulta Beauty reported an increase of 16% in online orders.
The best beauty products to invest in allegedly are:
*Inter Parfums Inc (IPAR), in operation for the past 30 years, with an EPS OF 1.10$ this year, and after licensing the deal with Ferragamo. At the end of the first quarter of 2021, there were 9 hedge funds holding positions in the stock.
*Nu Skin Enterprises (NUS). The popularity of skincare rose during the pandemic, right when people were not able to show off lipsticks and decided to take care of themselves at home. It has a P/E ratio of 17.16, and $2.22 EPS.
*E.l.f. Beauty Inc (NYSE:ELF): it is a recently new multinational makeup and skincare brand. Between 2020 and 2021, the ELF stock gained over 60% and even DA Davidson raised the price target on ELF stock. It currently has a P/E ratio of 81.81 and $0.53 EPS.
*Ulta beauty (NASDAQ:ULTA): it’s got 46 hedge fund holders, with a P/E ratio of 18.51, an EPS of $21.35 and an average volume of 884,553.
The Lipstick effect, or Lipstick Index, entails a negative correlation between beauty sales and the general economic trend and can be found even during the 1930s Great Depression.
The term was used by Leonard Lauder, the former CEO of Estée Lauder, that stated that the brand’s lipstick sales jumped after the 9/11 terrorist attack and the corresponding American downturn.
Similarly, in 2012, researchers in Texas found out that a downturn in the economy had a positive effect on profits in the beauty industry.
According to NPD Group Inc, in 2011 in the US, skincare, makeup and fragrance sales rose by 11% with respect to the previous years. Sales also rose by 9% in Britain and by 3% in France.
Therefore, people that have less disposable income decide to spend it on non-essential goods anyway. The main theory behind this behaviour is either that women would buy more cosmetic products to feel more attractive, or that in general buying a small luxury will not leave you completely broke.
The Journal of Behavioural and Experimental Economics in 2020 made research on CEX - Consumer Expenditure Survey (which does not distinguish between diverse beauty products) - and it turned out that during the Great Recession, women between 18 and 40 years old would reduce their spending on other categories of consumption to favour spending in cosmetic brands.
Back in June this year, the NPD Group found out that sales of lipstick and other types of makeup grew by 48% in the first quarter over the previous year, and that the biggest share was retailed by prestige brands.
Economists establish that during recessions, consumers spend increasingly either on the traditional inferior good, or the morale booster (non-necessities).
The Lipstick Index could therefore be the indicator of a possible economic recession.
Moreover, after the rebound from the COVID-19 pandemic, the new threat for Europe and the US became inflation. By July inflation had reached 8.6% in the US, and 9.1% in the UK, triggering a drastic effect on various industries.
Beauty purchases seemed on the rise, and brands were forced to up their RRPs to cover higher supply chain costs. For instance, pricing for fragrances at Ulta, Sephora and Nordstrom has increased by 12% since 2020.
According to Yahoo Finance, the cosmetics industry is a fast-growing one and generated over $500 billion in sales in 2020.
According to NPC, during the first half of 2020, the sales of makeup products declined by 24%, whereas the skincare sector was on a rise during the pandemic.
E-commerce sales grew, too, and in the first quarter of 2021, Ulta Beauty reported an increase of 16% in online orders.
The best beauty products to invest in allegedly are:
*Inter Parfums Inc (IPAR), in operation for the past 30 years, with an EPS OF 1.10$ this year, and after licensing the deal with Ferragamo. At the end of the first quarter of 2021, there were 9 hedge funds holding positions in the stock.
*Nu Skin Enterprises (NUS). The popularity of skincare rose during the pandemic, right when people were not able to show off lipsticks and decided to take care of themselves at home. It has a P/E ratio of 17.16, and $2.22 EPS.
*E.l.f. Beauty Inc (NYSE:ELF): it is a recently new multinational makeup and skincare brand. Between 2020 and 2021, the ELF stock gained over 60% and even DA Davidson raised the price target on ELF stock. It currently has a P/E ratio of 81.81 and $0.53 EPS.
*Ulta beauty (NASDAQ:ULTA): it’s got 46 hedge fund holders, with a P/E ratio of 18.51, an EPS of $21.35 and an average volume of 884,553.
💥 Free signals and ideas ➡ t.me/vfinvestment
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.