The ‘lipstick effect’ is taking a budget turn

Our spending might be slowing, but Australians are still spending big on looking good.

Cosmetics sales have held up remarkably well, even as households have contended with the effects of stubbornly high inflation and rapid-fire interest rate rises on their budgets.

The trend of buying small luxuries such as beauty supplies during times of downturn is so entrenched that there’s even an economic term for it – the “lipstick effect”.

It’s a phenomenon that gives consumers a feel-good boost as well as retailers.

“Our cosmetics, particularly premium fragrance – we are a market leader in fragrance – went really well,” Myer boss John King said this month when discussing the department store’s best profit in years.

Myer boss John King said cosmetics, fragrances and fashion have sold well despite the difficult economic environment.Credit:Steven Siewert.

The lipstick effect, however, could not save Australian beauty brand Purely Byron, which collapsed into administration this week. The skincare company, co-founded by model and actress Elsa Pataky and backed by her Hollywood star husband Chris Hemsworth, folded less than one year after launch, serving as a reminder that breaking into the market with a new brand can be challenging.

Administrators confirmed this week that the company was for sale, while those with knowledge of the company said its troubles reflected challenges at its major shareholder, embattled beauty products maker BWX.

While the administration process is yet to fully play out, Purely Byron’s collapse occurred against a backdrop of changing consumer preferences and an onslaught of competition at the luxury and budget ends of the market.

In a world where Instagram and TikTok trends can create cult favourite products overnight, and the discount department stores are investing heavily in producing budget offers, a divide is growing between high-end, designer products and dupes that can be bought for a few dollars at Kmart.

Products from Purely Byron, the skincare brand co-founded by model and actor Elsa Pataky, are no longer available for purchase online.

The founder of Melbourne cosmetics contract manufacturer New Laboratories, Rohan Widdison, says it’s the brands caught in the middle that are the most vulnerable during tough economic times.

“Mid-market products that fail to innovate and differentiate themselves from the broader market are thus being squeezed on both ends – they can neither claim to be premium luxury cosmetics, but they’re not the kind of cosmetics you’d buy from the drug store either,” he said.

‘Beauty is one of the highest growth categories right now … not a category we have ever really been able to get traction [on before].’

Meanwhile, online sellers such as Amazon have increased the breadth of skincare and make-up products and offer subscriptions where shoppers can get them regularly delivered.

“We have seen a growth in ‘Subscribe & Save’ subscriptions within beauty, showing Australian shoppers are looking to save on beauty essentials. We have seen an increase in subscriptions to products from trusted everyday beauty brands such as Maybelline, La Roche-Posay, Revlon, and Cetaphil,” an Amazon Australian spokesperson said.

Purely Byron co-founder Elsa Pataky and husband Chris Hemsworth.Credit:Getty Images

Last month, Big W told investors in its parent company Woolworths that “luxe for less” beauty brand MCo was the fastest growing make-up line in its supermarkets and discount department stores, noting that shoppers were “trading in” purchases at specialty retailers to buy make-up with them instead.

“Beauty is one of the highest growth categories right now … not a category we have ever really been able to get traction [on before],” Woolworths boss Brad Banducci said.

Kmart boss Ian Bailey is also upbeat about the performance of his store’s beauty offer.

“We’ve put a lot of effort into cosmetics, and actually the product offer has been very, very popular – it’s growing really quickly,” he said after an event for Melbourne Fashion Festival this month.

He said that Kmart had become better at producing home-brand products across a range of categories that were similar to more expensive stores. This encouraged some shoppers to trade their purchases down to more budget-friendly products, freeing up their cash for other things.

“[They say], why would I spend more for this item? I can get it from Kmart for this price, and if I’m at a higher income level, I can then choose to go and do something else,” he said.

There’s still a broad network of bricks-and-mortar beauty retailers across the country, from the beauty halls at Myer and David Jones to Sephora and rich-lister Jo Horgan’s Mecca.

The trading environment means that pure-play online cosmetics brands such as Adore Beauty have to work extra hard to increase their customer bases. The company’s shares are down by more than 19 per cent year-to-date, and the business told investors in February that it was no longer expecting double-digit revenue growth for 2023.

Adore’s chief executive, Tamalin Morton, said the company was focused on expanding its private label offer to make products that resonate specifically with the brand’s customers. She also pointed to the company’s strategy of stocking products that span multiple price points.

“Adore Beauty has a wide range of over 270 brands and more than 12,000 products – spanning masstige through to luxury, so we’re well-placed to meet evolving customer needs and budgets,” she said.

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