The “lipstick index” theory states that lipstick sales increase during economic downturns.

NEW YORK – Like many Americans, Carlo Maldonado is cutting back on his spending to rid his wallet of rising costs: She eats out less and attends fewer social events to limit the impact of high gas prices.

But the 26-year-old social worker from Portland, Oregon, didn’t skimp on her eye makeup — the mascara, eyeliner and eye shadow she usually wears over her face mask to work.

“It’s something I can’t live without,” Maldonado said. And she seems to be not alone.

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

Target, Kohl’s, Macy’s and Nordstrom reported strong beauty sales in their fiscal second-quarter earnings reports released over the past few weeks. Walmart, the nation’s largest retailer, said it was seeing increased momentum in its cosmetics business, citing strong sales in its cosmetics and skin care and hair care businesses. Meanwhile, Ulta Beauty, the nation’s largest beauty retailer, said total sales rose nearly 17% in the latest quarter compared to the same period last year.

Americans, once stuck behind Zoom screens in the midst of the pandemic, are out and about looking their best. Colleagues – some of them meeting for the first time – try to make an impression. Meanwhile, people are going on dates and getting together for summer parties and barbecues after months of pandemic-induced loungewear and binge-watching Netflix at home.

But another possible explanation for why beauty is booming when consumers are more concerned about their spending is a long-standing theory known as the “lipstick index,” which states that lipstick sales increase during economic downturns.

The rationale is this: When consumer sentiment declines, Americans tend to escapism, looking for small ways to indulge themselves, such as 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 profits in August for its fiscal third quarter.

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The lipstick theory worked, though not always. Makeup sales exploded during the Great Depression and the recession of the early 2000s. But sales fell during the 2008 economic collapse, according to research firm NPD Group. The same thing happened in the early days of the pandemic, when Americans stayed at home — or behind masks — and have shifted their interests towards health and skin care as stimulus payments overflowed bank accounts, helping boost the savings of consumers who were already spending less on travel or eating out due to pandemic lockdowns.

Now makeup is back. Americans are buying more eye, face and lip cosmetics — about 2%, 5% and 12%, respectively — in an annual analysis of store sales, according to research firm IRI.

Macy’s CEO Jeff Gennett noted in an earnings call late last month that consumers focused on deals and cut back on purchases amid high inflation. However, they were able to purchase beauty products as well as travel-related items such as luggage, shoes and clothing to wear to the office, Genet said.

At the same time, Kohl’s reported that shoppers are making fewer trips, spending less per transaction and switching to value-oriented brands. But at Sephora beauty stores, opened last year as part of a partnership with the beauty chain, shoppers spend freely on skin care, makeup and fragrances.

“Customers don’t want to give up their beauty purchases,” Kohl’s CEO Michelle Gass told The Associated Press recently. “People should feel good at this time with so much pressure on them.”

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

“While we all feel these inflationary pressures, it affects the six-figure consumer less than the lower-income consumer,” Jensen said.

Elsewhere, however, strong sales show that Americans of all income levels are participating in the upswing. At Target, beauty sales increased in the low single digits, while home goods, apparel and electronics were all down. As a result, for the winter holidays, Target said it will be more cautious with discretionary orders, but will lean toward beauty as well as essentials like groceries.

In March, its rival Walmart launched high-end beauty salons in partnership with British retailer SpaceNK, and it says those sections have performed well. The retailer, which has been offering some discounts to consumers, will hold a beauty event in September where customers can find deals in store and online.

Those wins, combined with low price increases and supply chain issues, have left the beauty industry feeling insulated from problems in the broader economy, Jensen said.

“But there’s still so much stuff around,” she warned. “And we have to be aware that things can change at any minute.”

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