Lipstick Effect

AAA

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.

RELATED TERMS
  1. Consumer Goods

    Products that are purchased for consumption by the average consumer. ...
  2. Consumer Discretionary

    A sector of the economy that consists of businesses that sell ...
  3. Consumer Spending

    The amount of money spent by households in an economy. The spending ...
  4. Leading Lipstick Indicator

    An indicator based on the theory that a consumer turns to less ...
  5. Consumer Staples

    Essential products such as food, beverages, tobacco and household ...
  6. Monopoly

    A situation in which a single company or group owns all or nearly ...
Related Articles
  1. Personal Finance

    Hidden Costs Of Product Rebates

    These cash incentives lure in consumers, who are often unable to collect on the deal.
  2. Budgeting

    5 Ways To Control Emotional Spending

    Follow these five simple steps to keep your spending under control.
  3. Budgeting

    8 Tips To Help You Control Holiday Spending

    These tips will have you singing "Joy to the World" well into the New Year.
  4. Economics

    Understanding The Consumer Confidence Index

    We look at this closely watched economic indicator to see what it means and how it's calculated.
  5. Retirement

    Consumer Confidence: A Killer Statistic

    The consumer confidence is key to any market economy, so investors need to learn the measures and how to analyze them.
  6. Fundamental Analysis

    Lipstick And The Stock Market: Connection?

    We test the theory that lipstick sales thrive during an economic downturn.
  7. Credit & Loans

    How Interest Rate Cuts Affect Consumers

    Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here.
  8. Investing News

    Canada in Recession

    On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter.
  9. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  10. Stock Analysis

    Has SanDisk Found a Bottom?

    Learn whether SanDisk has found a bottom. SanDisk is a manufacturer of memory-based products used in all sorts of technology products.
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  2. How can I invest in electronic retailing (e-tailing)?

    Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  4. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  5. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  6. What factors make it difficult to compare performance ratios between retail stocks?

    Companies that operate in the retail sector significantly differ in terms of their profitability and efficiency, making stock ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!