In the face of a global cost-of-living crisis, and with inflation rates and rising costs of essentials squeezing into the budget of consumers, it is not out of place to expect the luxury beauty industry to suffer significant setbacks. However, the luxury beauty sector has historically proven itself resistant to economic downturns, and the current global economic pressures seem no different. L’Oréal, the largest beauty company globally, reported a 12% rise in sales for the first half of 2023, and an 11% increase for the whole of 2023, exceeding market expectations even as inflation surges in key regions like Europe and North America. Similarly, companies like LVMH and Chanel have noted that their premium beauty lines continue to perform well, despite the growing financial challenges facing their consumers.
As it seems, consumers are not just sticking with their preferred premium products—they are continuing to indulge in these luxuries, despite financial pressures. A report by KPMG International reveals that luxury consumers are often less price-sensitive than mass-market shoppers, and tend to see beauty as an affordable indulgence so long as there is sustenance, longevity, and long-term benefits. This is also because mass-market shoppers are getting hit harder by the cost of living crisis, as inflation in the US for example is running at 7.2% for the lowest-income households, as against the highest-income families whose rate sat at 6.6% in 2022.This means that even if they cut back on larger purchases like fashion or travel, they may still treat themselves to a high-end lipstick or skincare product—a phenomenon experts have referred to as the “lipstick effect.”
The Lipstick Effect in Action
The “lipstick effect” is the idea that consumers facing economic hardship still seek out affordable luxuries, such as premium beauty products. “During downturns, small indulgences like high-end cosmetics often provide consumers with a sense of control, self-worth, and pleasure, without breaking the bank,” retail expert Paula Floyd says to BeautyMatter. Floyd is the founder of Headkount, a go-to retail agency for beauty brands, working with the likes of Glossier, Ulta, Sephora, Rare Beauty, and many others. “Rather than splurging on a designer handbag or a luxury vacation, consumers are more likely to walk into a retail store, and purchase a $50 serum or $100 perfume, which still allows them to feel part of the luxury world,” she continues.
While overall consumer spending might slow down, the prestige beauty segment is relatively immune to the full effects of economic pressures. According to Statista, the global luxury beauty market is projected to grow to $87 billion by 2028, up from the estimated $62.3 in 2022. This growth highlights the enduring appeal of luxury beauty despite economic challenges, and underlines the sector’s ability to adapt and thrive.
The Business Strategy: How Luxury Brands Are Enticing Consumers
“Luxury beauty brands understand that their customers are willing to make financial sacrifices elsewhere in their lives to maintain their beauty rituals, and they have doubled down on marketing strategies that capitalize on this,” Keon Zhang, consumer product expert and former General Manager at Essie, tells BeautyMatter. Zhang is the CEO of Back to Earth Skincare and Creator Brand Labs, an incubator focused on the health and wellness industry. “Many brands have now shifted their focus to promoting their products as essential investments in self-care, rather than as mere indulgences,” Zhang continues. By framing premium skincare or makeup as a necessary tool for wellness or confidence, luxury brands tap into emotional triggers that are particularly powerful in difficult economic times.
Luxury beauty brands like Aesop and Loewe, for example, have cracked this code. Products like hand soaps from these brands cost as much as $100 per bottle, with some marketing sister-products like matching hand lotion to use alongside them. The Canadian Tiktoker with over 500,000 followers, Chris Zou made a recent video about luxury brand entrapment. “I thought if I got myself the hand soap alongside the [gifted] hand cream from L’Occitane, it’ll make my hands extremely soft. So, I made the jump from my $15 bottle of Whole Foods hand soap, to a $30 bottle of L’Occitane hand soap,” he says in his video. He also discussed how the upscale packaging of these products provides a high level of social currency, and silently speaks to someone being well off. Zou has subsequently moved from L’Occitane hand soap to Aesop hand soap, which costs approximately $40, and now Loewe’s Tomato Leaves Hand Cleanser, which he bought for $120. “I honestly don’t know how I ended up in this hedonic treadmill of hand soaps, but to be honest, I was never unhappy with [my $1] soft soap,” he laments.
The theory of exclusivity is another code luxury brands have cracked. “Brands are also using exclusivity and limited-edition launches to drive demand,” Adam Ortman, consumer psychologist and founder of minority-owned marketing agency Kinetics365, says to BeautyMatter. Ortman’s portfolio spans companies like Sephora, Ceremonia, and Too Faced. Gucci Beauty recently launched a limited-edition Rouge à Lèvres Voile lipstick collection, which was encased in precious gold-toned packaging topped with a rose-printed cover that recalls vintage prints from the 1950s, which many retailers such as Selfridges are reporting to either be sold out, or in limited stock. Similarly, brands like Tom Ford and its luxury fragrance launches continue to command high prices and waiting lists, leveraging FOMO to drive consumer purchases even during financially constrained times. “One of the most effective strategies luxury beauty brands employ is emotional branding, which taps into the psychological motivations behind consumer behavior,” Ortman says. In his video, Zou says that one of the reasons he bought the Loewe Tomato Leaves Hand Cleanser was “when I took a whiff of this hand soap, I was immediately transported to Naples, Italy…[even though] I have never even been to Naples.” “Luxury beauty brands are masters of creating narratives that evoke feelings of exclusivity and empowerment, which is crucial during economic hardship,” Zhang says, “and consumers are seeking emotional connection and self-care solutions when facing stress. These brands capitalize on that need.”
In the digital age, luxury beauty brands are using social media and digital platforms to maintain their allure and continue engaging with their audiences, particularly younger consumers. According to a 2021 report by Gartner, luxury brands are currently spending 33% of their advertising budgets on digital marketing, up from just 10% in 2012, focusing heavily on direct-to-consumer e-commerce, virtual consultations, and influencer partnerships. According to McKinsey & Company’s “Age of Digital Darwinism” report, 80% of luxury sales today are digitally influenced. “Platforms like TikTok, Instagram, and YouTube allow luxury beauty brands to create immersive digital experiences, from personalized beauty consultations to behind-the-scenes content that taps into the brand’s heritage, exclusivity, and craftsmanship,” Ortman says. “Although controversial, influencers and celebrities are still playing a vital role in maintaining the desirability of luxury beauty,” he says. Besides entering the technology space through social media, luxury beauty brands are also deploying AR technology for virtual try-ons, allowing consumers to experience products digitally. “This is a shift that aligns with the changing consumer shopping behavior in the wake of the pandemic,” Floyd says. “These technologies help bridge the gap between the in-store luxury experience and the convenience of online shopping.”
The global economic strain is having a noticeable impact on consumer spending power, but this doesn’t necessarily translate into lower sales for luxury beauty brands. Luxury beauty brands have proven their ability to thrive amid a cost-of-living crisis, leveraging emotional connections, exclusivity, and innovative marketing to maintain consumer loyalty. Despite financial constraints, the desire for small indulgences in the form of premium skincare, fragrances, and cosmetics remains strong, with consumers viewing these products as essential investments in self-care. As brands continue to innovate and adapt to evolving consumer demands, the luxury beauty sector is poised to navigate these challenges, demonstrating resilience in the face of economic adversity.
