Americans splurge on beauty, despite setbacks elsewhere

NEW YORK (AP) — Like many Americans, Karla Maldonado has been cutting back on spending to keep her wallet from rising costs: She’s eating less and attending fewer social events to stem the impact of high gas prices.

But the 26-year-old social worker from Portland, Oregon hasn’t skimped on her eye makeup: the mascara, eyeliner and eyeshadow she normally wears to work right on top of her face mask.

“That’s something I can’t do without,” Maldonado said. And she doesn’t seem to be alone.

Many major retailers cut their financial outlook for the year after seeing shoppers pull back from many discretionary items in the latest quarter. But among the notable exceptions: beauty.

Target, Kohl’s, Macy’s and Nordstrom highlighted strong beauty sales in their fiscal second-quarter earnings reports issued in recent weeks. Walmart, the nation’s largest retailer, said it is seeing further momentum in its beauty business, citing strong sales in cosmetics as well as skin and hair businesses. Meanwhile, Ulta Beauty, the nation’s largest beauty retailer, said overall sales were up nearly 17% in its most recent quarter, compared to the same period last year.

Americans, once stuck behind Zoom screens amid the pandemic, are out and about and want to look their best. Co-workers, some of whom are meeting for the first time, try to make a good impression. Meanwhile, people are dating and gathering for summer parties and barbecues after months of pandemic-induced casual clothing and Netflix bingeing at home.

But another possible explanation for why beauty thrives when consumers are more concerned about their spending is a long-standing theory known as the “lipstick index,” which posits that lipstick sales rise in times of economic downturn.

The reasoning goes like this: When consumer confidence drops, Americans seek escapism by looking for little ways to indulge, like buying a new lipstick instead of more expensive alternatives they can no longer afford. For others, their version of lipstick might be a cheap beer or a $5 Caramel Macchiato from Starbucks, which reported record August revenue for its fiscal third quarter.

The lipstick theory has stuck, though not always. Makeup sales soared during the Great Depression and recession in the early 2000s. But sales slowed during the 2008 economic crash, according to market research firm NPD Group. The same thing happened during the early days of the pandemic when Americans stayed home (or behind masks) and shifted their interests to wellness and skincare as stimulus payments flooded bank accounts, causing it helped inflate the savings of consumers who were already spending less on travel or dining. out due to the pandemic lockdowns.

Now, makeup is roaring back. Americans have bought more eye, face and lip makeup, by about 2%, 5% and 12% respectively, in an annual analysis of store sales, according to market research firm IRI.

At Macy’s, CEO Jeff Gennette noted on an earnings call late last month that consumers have focused on deals and cut back on purchases amid high inflation. Still, they managed to buy beauty products and travel-related items such as luggage, shoes and office clothes, Gennette said.

Meanwhile, Kohl’s reported that shoppers were taking fewer trips, spending less per transaction and shifting to value-oriented house brands. But at its Sephora beauty stores, launched last year as part of a partnership with the beauty supply chain, shoppers spend freely on skincare, makeup and fragrance.

“Customers are not willing to give up their beauty purchases,” Kohl’s CEO Michelle Gass recently told The Associated Press. “People need to feel good right now with so much pressure on them.”

Sephora’s sales mirror broader findings released in July by the NPD Group, which showed that among the 14 discretionary industries tracked by the group this year, beauty was the only category to see an increase in sales. However, the persistence of beauty in the most prestigious markets, such as Macy’s, Sephora and Nordstrom, is being driven primarily by high-income earners, or those with an annual salary of $100,000 or more, according to Larissa Jensen, an adviser to the NPD beauty industry.

“While we all feel these inflationary pressures, it has less of an impact on a six-figure earning consumer than it does on a lower-income consumer,” Jensen said.

Elsewhere, however, strong selling shows that Americans of all income levels are participating in the rally. At Target, beauty enjoyed low-single-digit sales increases, while home goods, apparel and electronics suffered declines. As a result, for the winter holidays, Target said it will be more cautious with its discretionary merchandise orders, but will lean on beauty and necessities like groceries.

Competitor Walmart launched high-end beauty areas in March in collaboration with UK retailer SpaceNK, and says those sections have done well. The retailer, which has been offering select discounts to consumers, will hold a beauty event in September where customers can find deals in store and online.

These victories, combined with low price markup levels and supply chain issues, have left the beauty industry feeling insulated from the challenges of the broader economy, Jensen said.

“But there are still so many things going around,” he warned. “And we have to be aware that things could change at any time.”