The Lipstick Economy
I was browsing around the web the other day when I came upon an article that talked about an economic phenomenon called the “lipstick indicator.” I was intrigued.
According to Investopedia’s dictionary, it’s a term coined by Leonard Lauder, the chairman of Estee Lauder, the cosmetics company. Lauder noticed that when the economy got tough, lipstick sales would go up. Why? Well, it seems that we turn away from big spending to small indulgences; lipstick fit this bill. In fact, in the months following the September 11 terrorist attacks, lipstick sales doubled.
Three sorts of products sell well during tough times: there are your small indulgences, then there are your morale boosters – to make you forget that your investments are down 20% or that you can no longer afford that nifty $400 cell phone. And then there are your inferior goods – the crap people buy so they can keep shopping even though they can’t afford value anymore.
It seems that not shopping would be just too depressing.
Even the Richy Riches are beginning to feel the pinch, it seems. According to a poll by a U.S. marketing company whose clients include retailers in the luxury goods market, there’s been a 20% decline in spending on luxury goods in the second quarter of 2008, and the lowest luxury consumer confidence level in the about five years.
If you’re south of the border and received a piece of the $50 billion stimulus from Mr. Bush, no doubt you’re still spending. Scott Hoyt, senior director of consumer economics at Moody’s Economy.com says that those cheques could spur spending until September, falsely buoying the economy since consumer spending accounts for about 70% of the U.S. economy. In Canada, no one is throwing money at us in an attempt to keep us spending (though $50 BILLION would go a long way to paying down some debt, wouldn’t it?)
If you accept the idea that small indulgences are one way to offset the yuck of a nasty economy, then the next question is what are you going to indulge in, and how often? I’m not a lipstick girl. Couldn’t care less about make-up. Natasha, who does my makeup for the show, has to practically fight me to do my touch-ups. For me, it’s not coffee either, since I don’t drink the stuff. But lots of other people do. And while it may have been a small indulgence in the past, Richard Bach ruined it for a lot of people.
Ever since Bach equated lattes with waste, the idea of small indulgences has taken on a different meaning. A small latte at $3.74 a pop works out to about $1,000, which is not a SMALL anything. So there are lots of people who won’t do that anymore.
Of course, if coffee doesn’t work we can always turn to football and the Super Bowl effect. Basically, it goes like this: If a team from the AFC wins the Super Bowl, the national economy will do badly. If a team from the NFC wins the Super Bowl, the national economy will do well. There doesn’t seem to be much proof either way, but in many of the years of the Super Bowl being played, it was more or less true.
What are some of the other signals people use? Umemployment, certainly. Inflation? Yup. Gross domestic product as well. How about rubber bands?
What?
The Rubber Band Indicator is this: when the economy is bad, the rubber bands around broccoli bunches at the grocery store are thinner. Hmmm.
How about an increase in the number of laundry lines as people attempt to cut back on their power usage? Or the percentage of gardens given over to growing FOOD instead of flowers? Or the number of people who are cutting back on cable?
So what are your signals that the economy is in the toilet? What changes have you made to the way you’re managing your money? What are your small indulgences? And what will it take for you to believe that the economy has made the turn and is on the mend?
August 22nd, 2008 at 9:48 am
I heard a report the other day saying that Canadians now spend 1.3 of what they earn, up from 1.2. EEGADS!
My budget remains the same regardless of the economy: I’m a happy, frugal saver, living within my means. Self-employment means I have to save for my future. No one else is going to do it for me.
I do have wishes (wants versus needs) and I keep them on a list, wait and see if the desire for the thing really lasts and, gasp, I save up for the item. When you have to wait for something like that, it provides great time to do your homework and really find the best value and deal possible.
My true measure of a healthy economy will be when our government and all of its people are not in debt. Lala Land, I know. Seeing our entire nation living on credit scares me a lot because collectively, it will bring us all down. It is a false economy.
Living small,
August 22nd, 2008 at 9:58 am
I’ve often wondered if certain industries, and therefore certain jobs, can’t signal that the economy is in the toilet. Take ours, for example: film and television. People in the Canadian film industry know almost immediately when the American economy is struggling because they stop coming up here to do business. Quite suddenly, no one is working. Most of my film friends are currently unemployed.
It’s hard to tell in television because Canadian channels still need content. But we on the bottom rungs (and outside of the main Toronto hub) are noticing we have to decrease our rates somewhat. I’m not sure if this is an industry trend, yet, but to me it warns that times are going to get tougher.
And that’s why I’m switching to health care.
August 22nd, 2008 at 10:55 am
Dear Gail
I don’t really see the economy as getting better in the next year or so. From what I’ve heard on the business news, there may be a default of a major bank coming up in the near future. I’m not sure if it’s going to be again in the US or overseas. I would suspect it still has to do with the sub prime market debacle. Many big banks in Canada own a little to a lot of that debt load, so we are all in this situation together.
So, what am I doing in this economy with this gloomy picture? Well, I’m not selling my house. I couldn’t get the market price from a year ago. Our neighbours are selling their home and can’t find appropriate buyers who are willing to pay a decent price.
I’m not buying anything that is unnecessary and this is hard for me. I do like a few indulgences - a snack from a fast food place is now a near to never occurrence. I will have to have missed a meal to treat myself. I often work late and on my long drive home, when I did have cravings I did stop for a treat - but I don’t do it that often anymore.
I certainly wouldn’t buy make-up. I still have the same three lipstick colours which I bought some time ago and they rarely get used.
I won’t buy clothes unless absolutely necessary - they are just too expensive in the retail stores. My mother reminds me that Value Village gets new clothes donated regularly - so I should go there. Unfortunately, I’ve rarely found anything new in my size so I don’t shop there. My sister can find a new wardrobe nearly every week and now has her daughter looking there too. So, shopping for non-essentials is one indulgence which has gone by the boards for me.
So, what do I do? I shop for food - looking for great deals in the weekly flyers - usually on non perishables which can be stored away for future use. That’s me. I don’t overdo the buying ahead but if something is on sale which we use, I will consider it. I find the store with the most deals that week and shop there. I do try to not run around to all the different stores because of the gas factor.
I will also buy the odd lottery ticket - which I know is a waste of money with the odds being so high but someone has to win that money.
I now use my excel sheet to track every expenditure and spend hours on my budget. This has been Gail’s effect on me!!
I’m trying to find a way to build up emergency funds again but am having a hard time as our fixed and variable expenses take up so much of our income - I do have to re-think my cell phone provider when the contract expires this fall. I do have RSPs and a little personal savings but it’s hard now that I’ve bought a new car to have those emergency funds continue.
I also leave the car in the driveway and don’t go out unless necessary. This is because of the cost of gas and I have only so much budgeted for gas each month.
When you think about it, it’s a gloomy way to look into the future but it took a long time to get to this point, so it’s going to take an even longer way back to having a healthy economy. The consumer price index was announced yesterday and it was the highest in a long time at 3.4%. Will our contracts at work reflect the cost of gas when renewed?
Since I had the entitlement bug (spending wise) up till a year and a half ago, I need to really continue with putting my nose to the grindstone so that I can get myself into a much better financial shape which will make me much more happy. It’s truly a mind set which needed to change for me. I tried to provide everyone to all and now can’t do anything. I think about myself and my financial stability so that I can be more flexible in the future.
As a society, we are at the lowest point in our history for building up individual savings in this country. With the new Tax Free Savings Accounts coming in the new year, I will be placing my money held in a high interest account in this new savings product. At least a year from now I won’t be adding the interest from this high interest account into my taxable income. This is the first good news from this government which I can applaud.
So, it might look gloomy to you reading this, but it is also positive, because I’ve turned the corner and am coming back toward economic stability. I have only the mortgage and the car loan to pay off. I’ve upped the payment on the mortgage and am paying the car loan off in weekly payments to help reduce the cost of the borrowing each month. I’ve paid off my Visa and have only monthly expenses to pay. I pay the groceries by debit - but allow only so much money for each week. So, it’s not too bad.
I’ve tried to plan how my budget will fit my needs better, and I’ve allocated funds into so many different categories according to my needs. I just need to revise the budget every few months to make constructive changes.
I hope that I can find even more ways to save money. It takes time to get into this savings mode but once you’re there, you just keep coming up with new ideas each time you consider your budgetary problems. My aunt used to do little things to save money. If she had a coupon to help reduce costs at a store, she would put that same amount away in a separate piggy bank for future needs - just a way to double save!!
We can all come up with ways to save and then share our ideas. During WWII, people had victory gardens - growing their own food. Well, I believe it had more to do with helping people to learn how to become more self-sufficient rather than for just helping to feed their family. Maybe, we all have to become more self sufficient in our own way so that the economy will turn around in due course!!
August 22nd, 2008 at 11:14 am
I always figure that the state of the economy is inversely proportional to the number of cars I see on the 401 with broken headlights/taillights. You can tell that people are not committed to replacing their broken lights when they tape up clear/red/orange plastic over the light. It’s getting bad again now; I’m seeing more and more of these patch jobs.
August 22nd, 2008 at 12:24 pm
In Calgary the measure of the economy is in customer service. When the economy is as hot as it has been for the last 5 years, more jobs are added to the market, often at higher wages. The wages that don’t increase are those for restaurant servers. They nearly always make minimum wage to be supplemented by gratuities based on their skill. As the economy and labour markets heat up, the best servers with multitasking and customer service skills move up to higher paid jobs. They are typically replaced by those with no experience at any job or those who are willing to settle for minimum wage.
I can tell when the economy is really running when I can’t find a dependable waiter or bartender attached to a meal costing less than $50 (even that became difficult at one point). The skilled members of the profession moved up for higher pay. Those left in the industry either can’t hack it or don’t care. When the economy truely starts to slow down, the standards for servers will increase as the skilled individuals are downsized from their higher paying jobs and competition for positions increases.
Is it wrong that I secretly yearn for the day when I head out for a patio lunch that getting a pint is no longer a crap shoot of an experience??
August 22nd, 2008 at 1:16 pm
I understand on an intellectual level that the economy is tough based on what I hear on the news and what other people tell me, but I’m making nearly double what I made last year (now that I’m finished my MSc) and I don’t buy gas, so it’s not registering for me on a personal level.
August 22nd, 2008 at 4:58 pm
My indulgences…hummm.. I do like my lipstick. I wear it everyday. I don’t wear a lot of make-up but lipstick makes me feel nice. I enjoy a good haircut every 4 weeks, but I go to an inexpensive chain salon and spend $17 with tip. I keep a very short haircut, so I need to go frequently to keep my haircut looking nice. Another indulgence would be to go to the movies. It’s not cheap to go to a show anymore, especially if you want popcorn & a drink. I really enjoy buying a nice tablecloth once in a while as I like to entertain when I can. Now that I have a nice collection of them I have a hard time justifying buying one. I have to really love it.
Where I’m saving - I do grow a garden. I plan my driving to avoid wasting gas. I cook at home and I bake for entertainment. I really enjoy baking bread. I do dry my clothes on the clothes line. It’s helped me keep my power bill to $63/mth. I’d love to have some chickens for fresh eggs if I could get away with it, but I live in the outskirts of the city. I really would LOVE digital cable with a DVR but it’s just too expensive. I’m trying to stay away from the malls and stores to avoid unneeded spending. I bring my meals to work as well.
Signs of the economy slowing down are not always easy to see. I see changes in my friends and family. People are hestitant to travel and are staying home more. They are trying to pay off debt and trying to plan purchases instead of “buy now pay later”. Living in the Maritimes, more & more people are heading west. They don’t feel they have any choice.
As a banker, I still have tons of customers looking for limit increases, but there is also a lot of people looking for consolidation loans to try to lower their monthly costs.
August 22nd, 2008 at 5:36 pm
I think my indulgence is bringing home the whole-bean-organic-fair-trade-dark-roast coffee beans. I figure I like it better than anything I can get at a coffee-shop (less drinking out!) so I spend the $11/pound and it lasts quite a few luxurious cups with my husband!
That and REAL butter. No matter how expensive the grocery bill seems to climb, I can’t quite handle the switch to margarine for our family’s sandwiches.
August 22nd, 2008 at 6:03 pm
Indicators: my RRSP fluctuating a LOT over a few days or even throughout the day, and PC Double Chocolate Crunch Cereal going from $3 to $4.50, and groceries in general. Oh, and my high interest savings account interest rates keep decreasing.
We haven’t really made any changes due to the economy, because despite price increases, we’re still living well within our means. We are planning on tightening up a little over the next two months, in order to cover a few major things without taking our savings down to zero or going into debt (spring vacation, materials for renos so that renos can get done while husband has time off), but after those things are paid for, should be smooth sailing once again.
August 22nd, 2008 at 6:26 pm
Gail, don’t know if you know that Starbucks is closing down 600 outlets in the US. It must be one of those signals that the economy is not doing well south of the boarder…
Currently, I haven’t changed my ways I manage my money. But according to my mom I seldom spend money on myself, and I could see that my job is safe at this moment. Anyway, I’m considering cancelling my trip to Japan later in the year (I haven’t bought the ticket yet b/c of bad planning). The money saved could be used to pay down my student debt. The interest rates are still pretty low at this moment so I hope that I could pay my debt down as much as I could. Who knows what’s going to happen in the next few months?
August 23rd, 2008 at 3:00 pm
Angela, actually, the Starbucks closure is more a result of other variables in play.
1) cheaper players are uping their coffee quality, while still being cheaper - i.e. McDonalds, etc.
2) The original CEO, who is back at the helm, is irked by the watering down of the “Starbucks experience”, so wants to refocus on quality rather than mass presence.
3) Of course in a tighter market fewer people would be willing to spend $5 on a cup of coffee, however, Starbucks used to follow under the “lipstick economy” - i.e. inexpensive luxury.
The market Starbucks is in these days is certainly different at the height of its growth phase.
August 24th, 2008 at 4:40 am
So what are your signals that the economy is in the toilet?
Well after reading this blog I saw a commercial for this product “Manulife One” this is Canada’s first flexible mortgage account. It works by combining your mortgage with your chequing and savings account. As a result, the moment your income enters the account it immediately pays down your debt.
I am no financial advisor and I have a mess of debt myself but to me this just sounds odd. So I went back on the internet and looked it up and it still looks odd. Gail what do you think? I think it means people are in over there heads…..
August 24th, 2008 at 8:21 am
A: I did a blog on this account. Look it up and see. g
August 25th, 2008 at 5:04 am
Economy… toilet… that’s means toilet paper! One small indulgence of mine was a well-known - and more expensive - brand of toilet paper; even as the quality declined, I stuck (no pun intended) with it.
After reading a number of books on consumerism and illogical decision making, I decided that the branded toilet paper could go. I changed to a no frills one and guess what! The quality is better, the price is cheaper, and the roll thicker, i.e. it lasts no longer.
Ouch! Ouch! That’s the sound of me kicking myself for being too attached to something as silly as toilet paper!
August 25th, 2008 at 8:48 am
Ajana, can you recommend any of the books you read?
August 26th, 2008 at 11:05 am
This is my first year with a “real” job (I’ve worked since I was 14, but I’m taking a year off of university to do an internship at a major company). My strategy is to live as if I am still a student. I spend almost nothing that I don’t need to; I rarely go out to dinner, etc. The goal is to save up enough for a large down payment that I can use to buy a house with a depreciated value because of the unstable economy. I’m *trying* to make this economy work for me. I think it’s working!
September 2nd, 2008 at 2:46 am
Here in the Dallas/Fort Worth area, we seem to have missed most of the recession so far. There are lots of help wanted signs everywhere and stores and restaurants are, if not full, at least reasonably busy. One note of concern is that there are For Lease signs in front of every strip mall and office building.
One change I’ve made in response to higher gas prices is to instigate the Two Stop Rule. This means that my car stays in the garage until I have a minimum of two stops that I need to make in one trip.
Because they’re beginning to mine a huge natural gas deposit under the cities in the DFW metroplex, all property owners are receiving thousands of dollars to lease our mineral rights. We got our $5300 check on Saturday and I called my neighbor to tell him it had arrived. He asked what we were going to spend it on!!! I said we’re not spending any of it, we already have enough crap in the house to meet the needs of three families. We’re paying taxes, retiring a credit card and saving the rest.