Gauging the economy via the lipstick effect

  • Article by: DEE DEPASS , Star Tribune
  • Updated: April 20, 2011 - 7:04 AM

Shoppers who spurn big-ticket items in a recession still indulge in beauty splurges.

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Shelley Raebel, left, had her hair highlighted by Jessica Splinter at Progressions Salon. “As a woman, you need to be presentable,” Raebel said. “That won’t ever change.”

Photo: Bruce Bisping, Star Tribune

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When the recession hit, Eagan pharmacist Joelle Blasig made a trade-off. She would cut back on eating out but wouldn't give up her $65 hair treatments at the Progressions Salon at the Mall of America.

"I started going gray at 16 and ... this is something I'd rather spend my money on than going to eat out," Blasig said while sipping on tea as stylist Sandra Bethke dabbed Aveda Spicy Walnut hair dye into her roots.

Stories like Blasig's make up the sturdy pillars that support the $50 billion U.S. beauty industry, which is once again growing after some difficult years.

Today, Minnesota's Aveda stores and salons, Regis Salons, Thymes, Garden of Eden and hundreds of other beauty firms report stronger-than-expected sales, despite three years of economic turmoil.

The Professional Beauty Association predicts that the beauty retail industry is on schedule to reach $59 billion in 2012. That's up from $43 billion in 2006, the last full year before the recession hit.

Economists call it "the lipstick effect." The phenomenon occurred throughout the Great Depression in the 1930s and during every recession since. Financially hobbled shoppers may not buy cars or diamonds, but they still indulge in small guilty pleasures -- lotions, makeup, hair dyes, gels and cuts, colognes and manicures.

During the downturn and lackluster recovery budget-conscious customers like Blasig traded down. They bought smaller, cheaper products, hit salons less often or gave up movies and restaurants in order to stick with beloved beauty brands and habits. As a result, beauty companies are recovering quickly from the downturn.

"It's counterintuitive,'' said Ken Goldstein, economist for the Conference Board, which publishes the U.S. Consumer Confidence Index. "In some cases, things are so bad and so tough that the consumer can't go on vacation. She can't buy a dress .... But at least she can buy some lipstick."

At the Mall of America's Progressions Salon, customer Shelley Raebel heartily agreed. She was getting two-tone highlights with foils at a cost of more than $100. "People will give you the once-over. As a woman, you need to be presentable. That won't ever change," insisted Raebel.

Dave Hopkins, a marketing professor at the University of Minnesota's Carlson School of Management, said men and women find ways to splurge.

"It's like the coffee thing," he said, noting that java junkies cut back on $4 lattes during the recession. They turned instead to McDonalds $1 cups of joe or brewed their caffeine fixes at home. Basically they adjusted. "People will sacrifice on other things to still maintain that sense of luxury," Hopkins said. "They still want that indulgence."

The lipstick effect exists for men too, Hopkins said. But it's usually much more tame, with purchases tied to hair dyes, cuts or even botox for aging baby boomers.

It is estimated that men represent less than 25 percent of the U.S. beauty industry. Their recessionary splurges often included briefcases, rings and cufflinks and small electronic gadgets, Hopkins said. As a result, the beauty industry mostly looks to women for a strong comeback.

Hamline University student Saba Mwanza is there to help. She won't give up on the $120 perms, blow-dry and flat-iron sessions with her stylist Diondre Wallce. "I used to get my hair done a lot more frequently than I do now,'' Mwanza said. "Now, it's just when I have the money."

Customer loyalty

Such customer loyalty has proved crucial to the industry as unemployment topped 10 percent in 2009 before falling gradually to 8.8 percent in March. (Minnesota's jobless rate hit 8.5 percent in 2009 but is now down to 6.7 percent).

During the downturn, industry revenue "was almost flat, but it's been on the rise," said Brad Masterson, spokesman for the Professional Beauty Association. A recent survey of 750 U.S. salons and barbershops found customer traffic up for the fifth consecutive quarter.

In a separate study, market research firm NPD Group found that sales of spendy department store creams, makeup and fragrances jumped 4 percent to $8.4 billion last year.

Two key trends prevented disaster. Baby boomers are getting older. And desperate job seekers are determined to look their best so they can land full-time jobs and pay the rent. As a result, "non-essentials" like lipstick became, well, essential, said economist Goldstein.

At the Nature of Beauty Boutique and Spa in Mendota Heights, loyal customers can't go without its $38 "living luminizer" for the eyes or its $50 Dr. Alkaitis Skin Care baskets. People stroll in and might ask for a discount, but few leave empty-handed, said President Terri Bly.

Hopkins at the Carlson School is not surprised. Pinched consumers still buy beauty products. They just "trade down," skip Bloomingdales and buy their blush at drugstores. Others cut or dye their hair at home or wait longer between salon visits.

That "she's-gotta-have-it" mentality has helped Regis Salons. Its $41 Moroccan hair oil has flown off the shelves ever since it was introduced in December 2007, the month the recession officially started.

Katy Perry connection

Product sales of skin, hair and nail beautifiers dipped at the start of the recession, said Regis Executive Vice President Norma Knudsen. But "it recovered fairly quickly," she said. And today merchandise revenue is rising even as income from salon services lags. Regis Corp. service sales fell 1 percent in the second quarter, while product sales rose 2 percent.

At Regis hair salons, customers simply put fewer items in their baskets or pulled back from buying supersized shampoos and conditioners, Knudsen said. They bolted instead to the stores' trendy retail corner to snatch up trial sizes, $6.50 umbrellas, funky makeup and new $8.50 bottles of Katy Perry nail lacquer with the crackle finish from OPI Products Inc.

"Demand has been crazy," Knudsen said. "I know we are driving OPI crazy because, every time they get a batch made, we take it all. And we have been selling out in one day."

Why? "It's an affordable luxury,'' Knudsen said. The blend of "new, trendy and celebrity" always sells.

Such smart marketing shifts helped keep product sales steady, even as Regis' stock fell nearly 30 percent during the downturn. The company also kept advertising.

That's critical, said Bly at Nature of Beauty in Mendota Heights: "Women will spend money if they see it in a magazine. Then they are sufficiently convinced that it will work great and they will get their money's worth."

Dee DePass • 612-673-7725

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