# Luxury in Lockdown
What can the Covid-19 pandemic teach us about the behaviour of luxury goods in economic downturns and the lipstick index as an economic indicator?

## Introduction
Luxury goods refer to expensive, non-essential items, such as jewellery and make-up. Typically, during economic downturns when unemployment rises and consumer spending plummets, it is generally expected for these items demand to fall with disposable income.

However, in 2001, Leonard Lauder, the chairman of Estee Lauder, coined the term “lipstick index” after noticing significant increases in their luxury lipstick sales. Following the tragic events of 9/11, where there was widespread speculation of the US falling into recession, prestige cosmetic companies including Estee Lauder, MAC and Borghese reported over 12% growth in lipstick sales (The YU Observer, 2024). Lauder famously stated:

> “When lipstick sales go up, people don’t want to buy dresses. When things get tough, women buy lipstick”."

While he is credited with the creation of the index, this phenomenon of lipstick as an indicator of economic downturn can be observed in the majority of crises. For example, the surge in makeup sales during the great depression, employment gains for prestige cosmetics in the 90s and the 11% increase in lipstick sales during the global financial crisis (Naik, 2024).

However, the Covid-19 pandemic has bought unique challenges the world has never faced before including global lockdowns, travel bans, mask mandates and economic shocks that changed consumer behaviour. This blog explores how the luxury market evolved during the pandemic, particularly investigating why the lipstick index did not hold. As the second largest market for luxury goods, the USA provides an ideal case study for understanding how consumer preferences shifted in Covid-19.

## 1. The winners and losers of Luxury


Across the luxury space, there was substantial variation in levels of loss and rebound. Products heavily reliant on social interaction for use, such as fragrances, jewellery and leather goods, had their revenue hit the hardest during the pandemic. In comparison, fashion experienced the smallest percentage change in revenue which could be attributed towards the rapid shift in consumer preference for high-fashion athleisure during remote working. Still, luxury fashion struggled to bounce back — a result of changing lifestyles and the move away from traditional formalwear in the new world of hybrid working. Prestige cosmetics emerged as one of the most resilient segment in the luxury space. The category experienced the second-smallest decline in revenue with a bounce back to almost pre-pandemic levels. This reinforces the lipstick index suggesting consumers seek out premium beauty products more than other luxury goods as a form of accessible indulgence during an economic downturn.

## 2. A deeper dive into cosmetics: shifting beauty priorities?


During the pandemic, the unexpected happened. Prestige lip cosmetic revenue fell substantially lower than their stable growth trajectory, opposing the lipstick index. Similarly, face cosmetics dropped drastically in 2020. Following the pandemic, face products rebounded with the greatest year on year growth.

However, more interestingly – the eye cosmetics category experienced a substantial jump in growth during the economic downturn. This could be interpreted as a pandemic-era adaptation of the lipstick index with consumers focusing on the visible upper part of their face when wearing masks.

## 3. Prestige vs Mass Cosmetics: Luxury holds its ground


Prestige cosmetics held up better than the mass market during the pandemic, taking a smaller hit in revenue and bouncing back faster. By mid-2021, luxury beauty brands were already back to pre-pandemic levels, while the rest of the cosmetics market was still playing catch-up. It’s a trend that gives some weight to the lipstick index. Mass-market brands struggled with everyday makeup falling out of routine thanks to masks and working from home. But prestige products offered something different: a feel-good splurge. It shows how prestige beauty isn't just about the product — it's about the experience and emotional boost that comes with luxury which the mass market can’t quite replicate.

## 4. The drivers of prestige cosmetics revenue change
A random forest, which is a machine learning technique, can identify which factors are the most important in predicting an outcome. This model helps us understand which factors really influenced the revenue in the prestige cosmetics market over the pandemic.


GDP emerged as a key influencer on revenue throughout the cosmetics market, alongside other economic indicators. This suggests economic conditions are highly influential on cosmetic revenue. Upon further investigation, GDP and prestige cosmetic revenue in the random forest are negatively correlated (-0.9993). This supports the lipstick index suggesting during economic downturns when GDP falls, consumers increase spending on luxury cosmetics to maintain a sense of normalcy and self-care despite financial challenges.

More interestingly is the percentage of online sales for each cosmetic good being the most influential factor in the random forest. As businesses — and indeed, much of the world — came to a standstill during the pandemic, consumers turned to digital platforms to both stay connected and to meet their everyday needs, including retail therapy. In the absence of physical stores, the cosmetics market had to quickly adapt, relying heavily on online channels to maintain engagement and deliver products. The model’s emphasis on online sales as a predictor of revenue shows how vital digital transformation was for brands in this sector to cushion the blow of the fall in brick-and-mortar stores.


Despite this, luxury cosmetics had the lowest percentage of online sales across every year compared to various other markets in the US. Mass market cosmetics had a major head start with significantly higher online sales share even before covid-19 hit. Prestige brands, on the other hand, were slower to adapt. Their historically low online presence reflects their reliance on in-person shopping experiences – think beauty counters at high end department stores where customers can test products, speak to trained consultants, and enjoy a personalised, luxurious atmosphere. For many consumers, this experience is part of the product itself. Luxury beauty isn’t just about what you buy — it’s about how you buy it. That sense of exclusivity was hard to replicate online, which explains why the shift to e-commerce took longer for these brands. In contrast, mass-market cosmetics are likely to be bought based on price, habit or convenience. Brands in these areas were more willing to provide their products through major retail giants, such as Amazon and Walmart, as high volume and accessibility was more important than the brand mystique that luxury cosmetics thrive on.

Within the luxury market, cosmetics still fell behind categories such as fashion and leather in online sales share. This can be explained by the different natures of the products. Cosmetics are highly experimental – consumers want to test and sample products before committing to a purchase. Unlike a luxury handbag or item of clothing, which can be sized or styled based on guidelines and images, cosmetics require a more personal touch. Finding the right shade, texture or formula is a much more individual experience based on your own skin tone and type. A survey conducted in the UK found that 65% of consumers cited the ability to “touch, feel and try” products as the leading reason for purchasing cosmetics in store (Statista, 2019). Unlike more straightforward luxury items which can be purchased online with confidence, cosmetics requires more personalisation, explaining the lag in online sales shares for this category. As technology improves with AI allowing virtual try-ons, this may help close the gap between these categories, particularly in the event of another pandemic.

However, it is also important to consider that the data may not fully reflect the true sales performance of prestige cosmetics as it does not capture certain distribution channels relevant to this segment. For instance, the data separates purchases into online and offline categories, but does not include sales through hybrid models like click-and-collect, where products are ordered online but picked up in physical stores. Additionally, sales through third-party retailers, such as department stores, which often play a significant role in luxury cosmetics distribution, may also be underrepresented. Therefore, including these channels in the data could have significantly increased the proportion of sales online for luxury cosmetics.

Despite mask mandates limited predictive power for cosmetics revenue, they were still a significant influence on consumer behaviour, challenging women’s usual makeup routines. With hidden lips and fragile, broken skin caused by mask friction, consumers turned towards the eyes. While this change in makeup trends instigated by mask mandates is difficult to quantify beyond revenue, the shift in behaviour likely influenced cosmetics sales. Although mask mandates weren’t a reliable predictor in the model, their impact on consumer behaviour had a knock-on effect on revenue.



With over 77% of the female population in the US experiencing some form of legal mask mandate for over 6 months, it comes as no surprise that makeup routines changed. Trending on social media became the term “Mask makeup” as a direct response to this new reality. Beauty influencers showed new techniques emphasising the areas of the face still visible such as the eyes and eyebrows, while minimising or skipping makeup in the lower face and encouraging protective skincare and serums instead. This can help account for the fall in revenue for lips and face during the pandemic and the rise for eyes.

## Conclusion
There was a clear downturn in the luxury goods market with loss and rebound experienced differently across segments. Fashion experienced the lowest drop in revenue but had a weak rebound whilst leather experienced the largest drop and strongest rebound. It became clear products used mostly in social occasions outside of the home were hit the hardest. Despite this, luxury held its ground in the overall economy better than other segments, reflecting the lesser effect of economic downturns on higher income consumers.

Within the luxury cosmetic segment, it became clear the original lipstick index failed to hold for the first time in a century. During the economic downturn, lipstick revenues fell. However, it did not completely fail instead the concept has evolved. The pandemic provided evidence that other small luxury cosmetic eye products withheld the conditions of the lipstick index. As GDP fell, prestige eye product revenues rose, suggesting that the index should be expanded to include other categories. This shift is supported by economists who argue for a broader interpretation of the theory. If anything, the pandemic strengthens the case for the lipstick index as an economic indicator—consumer behaviour may shift in response to external factors like mask mandates, but the desire for small, mood-lifting indulgences remains consistent.

The random forest model, involving the largest luxury-consuming countries, indicated a strong relationship and negative correlation between the revenue of prestige cosmetics and GDP as well as other economic factors such as unemployment rate. This finding aligns with the lipstick index as the negative correlation suggests when GDP falls, revenue for prestige cosmetics increases. The model also highlights the vital importance of online sales shares. Further analysis indicated prestige cosmetics lagged behind many sectors such as the fashion and leather, however, this did not place the sector at a disadvantage as their strong revenue performance showed.

So, despite the pandemic presenting unique challenges, luxury goods became resilient compared to the rest of the economy. As consumer behaviours shifted due to unprecedented changes, such as lockdowns and mask mandates, the desire for luxury remained. Prestige cosmetics, particularly eye products, filled this demand which proves the index still holds. As an economic indicator, the lipstick index captures how increased spending on small luxury goods over big ticket items can indicate and predict an economic downturn.

The pandemic didn’t break the lipstick index – it transformed it.

## References
The YU Observer. (2024). *The Great Recession of 2025: The Lipstick Effect - The YU Observer.* [online] Available at: https://yuobserver.org/2024/09/the-great-recession-of-2025-the-lipstick-effect/

Naik, M. (2024). *Lipstick Index: What’s it about and does it actually hold up?* [online] Debt.Ca Available at: https://www.debt.ca/blog/lipstick-index-whats-it-about-and-does-it-actually-hold-up

Statista. (2019).*UK: Main reasons for buying beauty products in-store*. [online] Available at: https://www-statista-com.uoelibrary.idm.oclc.org/statistics/1608620/reasons-for-buying-beauty-products-in-store-uk/

For further information on the creation of this project please see my github: https://github.com/kaitlinjohnson1/Luxury_goods_project