DEFINITION of 'Lipstick Effect'

A theory that states that during periods of recession or economic downturn, consumers will eschew purchases of big-ticket luxury items and seek material solace in smaller indulgences, such as premium lipstick.

Also known as the "leading lipstick indicator".

BREAKING DOWN 'Lipstick Effect'

The lipstick effect is one of the reasons that the restaurant and entertainment industries typically do well amid recessions. Cash-strapped consumers want to treat themselves to something that will allow them to forget their financial problems, but they cannot afford to escape to Bermuda. Therefore, they often settle for dining out and going to a movie.

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