LVMH-owned Sephora is riding the ‘lipstick effect’ wave as it eyes more growth amid continuing economic downturn

When budgets get tight, there’s nothing a tube of lipstick can’t solve. Or at least, that’s what economists seem to believe. Even when people are scrambling to save every last penny, the “lipstick effect” has proved time and again that shoppers will indulge in small luxuries as a compromise since they can’t spend on big ones.

Cosmetics giant Sephora couldn’t be happier about it. 

The LVMH-owned chain, which performed “exceptionally” in 2023, was the French conglomerate’s fastest growing segment by sales at a time when luxury spending has been on a rollercoaster ride. Sephora contributed to a 76% profit rise in the selective retailing segment, which includes Duty Free shops and raked in €17.9 billion ($19.4 billion) in sales last year.  

Now, Sephora is eyeing more growth in the coming years as people continue spending on its makeup and skincare products, the company’s CEO Guillaume Motte said. 

“I think that Sephora has the potential to reach €20bn in sales… [and] the reality of our 2023 performance confirms this dream, and even tells me that we will undoubtedly reach it sooner rather than later,” Motte told the Financial Times in comments published Tuesday.

The Sephora chief also added that the “lipstick effect,” a term coined in 2001 by Estée Lauder heir Leonard Lauder to describe how people boosted lipstick sales during periods of economic downturn to treat themselves in small ways, had a part to play in Sephora’s heyday.

“We have a product that makes people happy, an accessible product. Are we going to have explosive growth? The answer is no. Am I concerned? The answer is also no,” Motte told the FT. He added that much of 2023’s expansion was driven by in-store sales as people got to experience different brands on display at Sephora stores.

Representatives at Sephora didn’t immediately return Fortune’s request for comment. 

LVMH bright spot

Sephora was clearly a bright-spot for LVMH through 2023—the French behemoth’s head, Bernard Arnault, described its growth “remarkable” during an earnings call in January. The beauty chain’s performance is a contrast from the peak pandemic years when low foot traffic in Sephora’s retail locations hurt its revenue and profitability (bear in mind, that’s when luxury demand boomed).

In 2022, as lockdowns were eased and people began venturing out of their homes again, Sephora’s sales rebounded. Interestingly, that’s also the year inflation hit record highs (at least in recent memory) and drove up the cost of living, pointing to the “lipstick effect” in action. Inflation has cooled since, but interest rates remain elevated and consumer confidence is still on shaky ground.

“Being short of money is psychologically daunting for people and the way to make yourself feel better, even if it’s ever so little, is to purchase something that you think will cheer you up,” Jansson-Boyd, associate professor in consumer psychology at Anglia Ruskin University, told the BBC in 2022.

Sephora isn’t alone in the rising tide that is increasing sales of beauty products. Take the company’s American rival Ulta Beauty, for instance—its sales have soared through 2023 as shoppers are “ready to celebrate” amid a challenging economic environment, CEO Dave Kimbell said. 

To be sure, the theory of lipstick sales and economic health being inversely proportional can be hard to break down in the broader beauty category. The economic indicator also didn’t really apply for the Great Recession of 2007-2009, and has had competition with other products like face masks in recent years. 

Whether tubes of lipstick will reign supreme in future economic crises remains to be seen. For now, at least, people clearly aren’t shying away from splurging a little on their favorite beauty products.   

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