The Lipstick Effect – Estee Lauder grows 13% yoy during the Pandemic year!

Leonard Lauder, the top Boss of global cosmetics giant “Estee Lauder” had first spoken about “The Lipstick Effect” during the aftermath of the 9/11 terror attacks on the Twin Towers in the US in the year 2001. According to him, (back then), the company sold more lipsticks after the devastating attacks even as the country was facing one of the worst crisis in its 300 year history, both financial and political. He had theorised The Lipstick Effect as a contrary Economic Indicator. According to this theory, Consumers continue to spend money on small indulgences during recessions, economic downturns or when they have very limited disposable income to spend on discretionary items. Who would have thought that “The Lipstick Effect” would continue it’s reign during the first ever, pan-global, large scale pandemic that we are witnessing currently with the Corornavirus!

Estée Lauder reported that its full-year Sales increased 13% to $16.22bn from $14.29bn in the previous year while its net earnings were $2.87bn against $0.68bn last year.

Fabrizio Freda, President and CEO said: “We delivered outstanding results in fiscal 2021, capped by an exceptional fourth quarter and powered by our multiple engines of growth strategy, as well as the timeless desirability of prestige beauty. Notably, both sales and profitability meaningfully exceeded fiscal 2019 performance. Amid the challenges of the pandemic, we invested in near-term and long-term growth opportunities and managed costs elsewhere with discipline while making important progress on our social impact commitments and sustainability goals. Our growth engines of skincare, luxury and artisanal fragrance, Asia/Pacific, travel retail in Asia/Pacific, and global online performed exceptionally well. Innovation soared and eight of our brands grew sales double-digits, led by Estée Lauder, La Mer, and Jo Malone London.”

This gives great confidence to millions of businesses which operate in price-points which are neither too low nor too high. For Ex., a birthday or anniversary dinner with friends / family in the pre-pandemic era would have been an indulgent one. For a table of 6 – 8 pax., the bill value would have been in the range of Rs. 2,000 at a neighbourhood mid-value restaurant (w/o alcohol). Today, most consumers do not wish to venture out to crowded places nor want to spend on lavish dinners. But an icing-laced multi-layer Cake worth Rs. 1,000 is an alternate for the occasion. While the bill is half of that of the pre-pandemic period, it is probably 2x-3x of an average Cake shop! Someone’s loss is some one else’s gain, after all.

Similarly, an expensive international holiday is now replaced with one back in India, maybe at a popular resort in the mountains or by the sea. A new walking / running shoe is now an “acceptable” gift for the spouse or parent or even to kids, as compared to an expensive alternate before 2019. An expensive pack of biscuits or cookies are now well accepted as a replacement to the weekend outings to nearby Malls. And most importantly, the extraordinary surge in OTT subscriptions of entertainment apps like Amazon Prime, Netflix or Zee5 is nothing but the money saved by not dropping by at Multiplexes, atleast once a month. Many have even managed to save enough money to buy a new LED Tv, save for a few who have purchased Electronic items like never before. Apple, the epitome of mid-luxury electronics is testament to this phenomenon. The company ran out of its iconic iPhone12 among other models and products during the most recent Amazon Prime Day, with delivery time being 2-3 weeks from the time of ordering. Times have changed. Shopping preferences too.

Going by national and international trends, it is safe to say that Retailers who have held on their forte over the past 18 months will continue to witness a business growth in the coming months if we are to go by the recent research conducted by RAI where Retailers have confirmed that they have achieved 72% of Retail Sales of July 2019 during the same month this year. Perhaps, this number should become 100% by November, mid-month of the crucial Q3 of FY 21-22 which coincides with Deepavali, Id and Christmas.