The “lipstick effect” is fading for cosmetics giants as consumers find comfort in experiential splurges

Buying a cherry-red smile… but the outlook is more matte than glossy. Beauty titans are often shielded during economic downturns thanks to the so-called lipstick effect. In gloomy times, cash-stressed consumers can’t afford big-ticket items, so they console themselves by indulging in small luxuries (think: $38 Dior Lip Glow).

• $20 gloss > $200 hydrafacial: As the US economy shrank in the first quarter, lipstick sales jumped 48% from last year (2X as fast as other beauty products).
• Lipstuck: But now even cosmetics giants are struggling to cover up ugly economic effects.

Losing luster… Last week Estée Lauder said its quarterly makeup sales fell 10%, and it lowered its outlook on weakening demand. Rival L’Oréal reported slowing growth as its profit-puppy luxe division (think: Prada, Lancôme) underperformed. FYI: Cover Girl owner Coty reports next week. But while consumers are cutting back on makeup, spending rose more than expected in September as Americans splurged on “experiential” indulgences.

• Travel go-tos are booming. Airbnb reported its best quarter ever last week while Marriott joined Hilton in lifting its annual forecast. Booking’s profit more than doubled.
• Chains including Burger King, Starbucks, and KFC and Taco Bell owner Yum Brands had robust sales growth as Americans opened their wallets for premium items like PSLs.
• Big food staples like Kellogg, Pepsi, and Kraft have reported strong sales this season as consumers kept stocking Frosted Flakes and Cheetos despite price hikes. Booze big shots like Smirnoff maker Diageo have also proved resilient.