It’s probably a gross understatement to say that the U.S. economy is a behemoth, the likes of which is a marvel to behold.
For all of its faults and detractors, the American markets propel a significant portion of the rest of the globe.
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It’s estimated that the U.S. makes up for just under a quarter of the entire world’s GDP.
And our economy is something of a living, breathing thing. It often reflects things like human nature and trends without most of us even noticing our actions are right there in plain sight.
One such phenomenon is known as the “lipstick effect.”
The lipstick effect occurs when consumers make smaller purchases on non-essential items, like lipstick, during financial downturns.
An uptick in spending during bad times may not initially make a lot of sense. But consider what people are spending their money on — and how much.
A poor economic environment often causes consumers to delay larger purchases — like cars or homes. So a simple $5 here or there to sate that consumeristic urge helps to fill the void.
An Estee Lauder cosmetics counter.
Image source: Shutterstock
Cosmetic companies have weathered bad storms
As its name suggests, many makeup and cosmetic companies actually thrive on the lipstick effect.
These companies, which put a lot of marketing efforts toward making women feel good, promote ideas of confidence during uncertainty and overcoming odds.
Consider many of their slogans, like “Be bold, be beautiful,” and “Because you’re worth it.”
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Few women delay purchases of makeup and personal care items just because the stock market is down. So a lot of these companies have gotten away with some relatively steep price hikes in recent quarters.
“We are committed to creating high-quality, feel-good formulas you love,” Rare Beauty wrote on its official Instagram at the end of 2024. “To maintain that standard, we’ve had to adjust our prices by $1-2 for some products as the cost of premium ingredients and transportation continue to rise.”
Large cosmetics brand sounds the alarm
Rare Beauty is hardly the only beauty giant grappling with higher prices.
Estée Lauder (EL) told investors during its Q3 2025 earnings call that it was struggling with considerable headwinds and would be forced to make some changes.
Net sales were down 10% overall in the most recent quarter. Here’s how those numbers broke down across several key areas:
Skin care: down 11% Hair care: down 10%Makeup: down 7%Fragrance: down 1%
To that end, Estée Lauder said it would have to lay off up to 7,000 employees to help offset sliding profits.
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So far, it’s estimating it will see between 8-9% net sale declines for the full year.
The cosmetics brand also sounded the alarm on tariffs and hinted at potential increases in pricing soon.
“We want to acknowledge the risks associated with the geopolitical landscape, specifically tariffs and the uncertainty of their impact on consumer sentiment,” CFO Akhil Shrivastava said.
“If conditions worsen, particularly regarding Chinese consumer sentiment and the potential pressure on sales during the 618 mid-year shopping festival, the negative impact on financial performance could exceed what we have factored into our current assumptions. In that case, achieving the outlook we are providing today may not be possible.”
