putting
lipstick on a
piggy bank
not all businesses suffer in a downturn.
Even when things are tough, consumers By Alejandra Mejía
are willing to fork out cash for goods that
give them personal satisfaction—a phenomenon analysts call the “lipstick economy.” The term captures the idea that, in nies dependent on consumer spending.”
the past, when the economy has soured, cosmetics and Nevertheless, a few other mass-market retailers are
other small, luxury goods have been immune to reces- bucking the slump. McDonald’s, for instance, has been
sionary belt-tightening. working during the past six years on its “Plan to Win”
In the current crisis, the phenomenon has held true for strategy, focused on improving food quality, service and
video games and consumer electronics—the most-gifted restaurant experience. It appears to be paying off. As of
goods during the 2008–2009 holiday season—according to December 2008, the company’s same-store sales rose 7. 2
Marshal Cohen, chief retail analyst with the NPD group, a percent compared to the previous year. During a year when
market research company based in Port Washington, N Y. the stock market lost a third of its value, McDonald’s be-And while the apparel industry lost the top spot, many pre- came one of the two companies in the Dow Jones indus-mium denim and T-shirt apparel companies are still show- trial average whose price rose in 2008, with shares gaining some growth as economy-minded shoppers prefer to ing almost 6 percent.
tweak their wardrobes rather than replace them. Similarly, Amazon’s profits and sales have surged, while
Ironically, the “lipstick economy” apparently hasn’t its principal e-commerce rival, eBay, reported its first-ever
helped lipstick sales. Estée Lauder, the cosmetics giant quarterly decline in revenues in December 2008. Cohen
that coined the term “leading lipstick index” to claims that Amazon’s success is a direct result of the
describe such discretionary, recession- company’s attention to improvements in its
proof spending, reported a 6 per- inventory management and Web tech-cent decline in net sales for nology. He argues that companies
the fiscal quarter ending that invest in innovative tech-
December 2008. Wil- nology have a better chance
liam P. Lauder, the of riding out the economic
firm’s chief exec- downturn. “This is criti-utive officer told cal,” he explains. “It helps
Business Wire, “The you keep pace with the
factors that im- consumer (and) if you
pacted our quarter find the right balance and
results were . . . not employ both long-differentfrom what and short-term plans
many other compa- you will be poised to be the
nies have experienced, early one to return during the
especially those compa- recovery period.”
