The "lipstick index" and the economy
The shift towards affordable luxuries, such as beauty products, dining out, and wellness items, is considered by many economists to be a key aspect of consumer behavior when an economy is under pressure (e.g., by inflation or rising unemployment).
According to the phenomenon known as the "lipstick index," an increase in the purchase of small luxury items, like lipstick, indicates that an economy is heading into or is already in a recession. Beyond cosmetics, other products in this category include expensive skincare items, accessories, specialty coffees, premium alcoholic beverages, and snacks. These allow consumers to feel pampered without feeling guilty.
Regardless of the state of the economy, this consumer behavior is observed more frequently in January and February, when consumers turn to "little luxuries" as a form of comfort for the money spent during the holidays, showing financial restraint while still enjoying something small.
Who buys "little luxuries"?
A Deloitte report on "little luxuries" shows that over 75% of consumers from 23 countries felt they had spent money on a purchase in the month, even though only 42% felt financially secure enough to do so. In the U.S., Sweden, Canada, and Australia, this figure exceeds 80%, while in Japan, 50% reported similar behaviors.
Food and drinks dominate as the top "little luxury" category, representing nearly three times as many purchases as "personal care" globally and four times as many in the U.S. In this dominant category, men account for 57% of purchases worldwide, spending 60% more than women on premium or specialty food and beverages.
It’s also worth noting that globally, the generation that spent the most on "splurge purchases" is the Millennials (ages 30-44), specifically Millennial men, with average spending of $53. On the other hand, the generation that spent the least on these purchases is the Baby Boomers (ages 61-70), particularly Boomer women, with an average spend of $23.
Retail strategies to address consumer needs
Stores respond to and embrace the shift toward little luxuries by offering more affordable luxury products. Many offer budget-friendly beauty and wellness lines, well-maintained second-hand luxury clothing, and collections of items that suggest high quality. These strategies make indulgence accessible to a wider audience.
While not universal, the shift to little luxuries involves both higher and lower-income consumers, reflecting a common desire for people to feel good by making purchases without significant financial burden. In uncertain economic times, little luxury purchases seem to be an easy and affordable way to treat oneself.