Not Much Color in Cosmetics This Time

Theory That Lipstick Sales Stay Strong as Economy Weakens Isn't Holding Up

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A correction has been made in this story. See below for details.

BATAVIA, Ohio ( -- So much for the lipstick effect: The theory that lipstick sales not only survive but thrive during an economic downturn doesn't appear to be panning out this time around.
Overall, cosmetic sales fell 2.2% to $790.4 million last quarter, according to IRI data reported by Deutsche Bank.
Overall, cosmetic sales fell 2.2% to $790.4 million last quarter, according to IRI data reported by Deutsche Bank. Credit: Siede Preis

Estée Lauder Chairman Leonard Lauder is credited with identifying the phenomenon in which sales of lipstick actually accelerate during a downturn as women theoretically console themselves with small luxuries during hard times. At least during the recessions of the early 1990s and 2001-2002, it seemed to hold true.

Yet as the economy slowed and lower-income women in particular were squeezed by gas prices and the housing crunch in the back half of last year, cosmetic sales got hit hard, at least in mass channels measured by Information Resources Inc. Among the weakest categories: lip treatments.

Sore lips
Overall, cosmetic sales fell 2.2% to $790.4 million last quarter, with sales of lipstick off 1.9% and overall lip treatments down 10.9%, according to IRI data reported by Deutsche Bank. Trends were worse for makeup overall in December, off 5% from a year ago, with lip treatments continuing to drag down the whole category.

Even in prestige and specialty channels, lipstick appears to be faring poorly as the economy slows and consumer distress rises. "It seems that consumers aren't walking away from makeup, but that they're buying it a little differently," said Karen Grant, beauty analyst with NPD Group. "They are opting a little more for the staples such as foundation and less [for] color, including lip and eye."

NPD is still analyzing December data, but the early read from the rest of 2007 appears to argue against any lipstick effect. Therein lies one of many puzzling factors about the cosmetics market of late, which seems to be defying expectations on many fronts.

Mass retailers such as Wal-Mart, Target and drugstores have been ascendant in most product categories, including the closely related skin-care market, for several years. But it's been a different story in makeup and color cosmetics, where department stores and specialty retailers such as Sephora and Ulta have been gaining ground, Ms. Grant said.

Specialty outlets
Makeup-artist brands, such as Estée Lauder's Mac and Bobbi Brown, sold at prestige and specialty retailers but not mass, as well as Bare Escentuals mineral products, launched in prestige and specialty outlets, have played a major role here.

It's not just lipstick that's in the red
Sales growth for the fourth quarter of 2007

Color cosmetics overall:

Eye cosmetics:

Facial cosmetics:

Facial powder:

Lip cosmetics:



Sources: Information Resources Inc., Deutsche Bank
So, too, have the preferences of fast-growing ethnic groups, particularly black and Asian women, for those brands and for buying in department stores and specialty outlets, Ms. Grant said. "That may be a function of [the prestige outlets] having color-matching capabilities," she said. "And the brands that are hottest for blacks, Hispanics and Asians now are Mac and Bobbi Brown, even though their awareness of the mass brands is higher."

She's still uncertain, however, whether a deepening economic downturn will change the equation and lead more women back to somewhat less expensive mass brands -- or perhaps to more lipstick.

One problem for lip treatments lately is that new-product activity in mass cosmetics has focused more on face and eye makeup, with relatively little on lipstick, said a marketer for one leading mass brand.

Ascendant mass brands
Still, he's counting on a downturn to lift sales of mass brands as some women trade down from prestige and specialty shops for mass products he said perform as well or better. And he doesn't believe industry rumors that big chains such as Walgreens and CVS will reduce shelf space for cosmetics this year in favor of faster-growing skin-care products.

Much of the malaise in mass cosmetics can be traced to a single company: Revlon, said Deutsche Bank analyst Williams Schmitz, which is still reeling from failed 2006 product launches and a management shakeup last year.

But he said even without reductions in retail shelf space, out-of-stocks could rise as mass retailers look to cut back on the heavy inventory load of cosmetics.

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CORRECTION: In an earlier version of this story Leonard Lauder was incorrectly identified as former chairman of Estee Lauder. He is the current chairman.
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