Earlier this year the media warned that the many residual impacts of the pandemic could eventually hit our vanity cupboards, and it appears that time is finally here, enter: The Lipstick Effect.
An economic indicator most commonly recognised in the beauty sector, the Lipstick Effect is sometimes confused as consumers spending less, and buying smaller – this is a myth. The concept is that in times of economic stress, shoppers will allow themselves more frequent, discretionary purchases for an emotional ‘uplift’, but one that won’t break the bank. The result? Consumers are still spending, regardless of price hikes.
The Lipstick Effect, while originally reflective of lipstick sales, is a transferable concept across most retail sectors, and many find that their usual best sellers are now being rivalled by more expensive alternatives as consumers look to treat themselves with a little luxury, or that will last them a little longer.
So, what does this mean for retailers? Supply chain remains a key area of focus to keep shelves stocked, but preparation for ‘unexpected demands’ may also need to be considered.
Supply chain management should still be top of mind
The pandemic exposed cracks in the global supply chain that were already showing long before COVID-19, and now, over two years since the pandemic began, supply chain delays have gone from a temporary issue to a permanent state of affairs.
At Bondi Sands, we saw shipping times from Australia to the UK and the US swell from four to six weeks, to nearly three months. By tackling these issues head on through increasing stock, maintaining a clear hold on our inventory, and communicating well with our partners we have so far managed to keep a step ahead of the game.
While this latest trend creeps in further, it is crucial that retailers maintain their successful efforts in the supply-chain space, as this isn’t an issue that will pass any time soon.
Allow for flexibility between stock lines
With shipping times and buying trends forecasted to face continued uncertainty, retailers should consider holding more stock than they would have pre-pandemic. This allows for more flexibility to meet disruption in traditional purchasing patterns. Think of this as a product ‘cash flow’.
Holding more stock can tie up more working capital, so make sure that it’s within your funding agreements, or that your funding facility is capable of accommodating the added extras.
Consider that your traditional ‘best sellers’ may plateau, or show some unexpected drops, and that your higher-priced favourites, but not necessarily your best sellers, may have a moment to shine.
For most brands, 70 percent of their revenue is made up of 10-15 percent of their SKUs – the core range that drives their brand. While focus should still remain on these to make sure that your hero SKUs are always in stock, keep a close eye on your other lines, and consider more of a balance in volumes to accommodate for volatility.
Pricing is pivotal
At Bondi Sands, we have found that our biggest strength during the Lipstick Effect cycle is our affordability.
We have strategically positioned ourselves 40 percent cheaper than our more expensive competitors, but also 30 percent more expensive than our cheaper competitors; this has allowed us to still manufacture a quality product, and gain customer trust, without the lofty price point. Our customers are focused on the quality of our products, something that is harder to find from the cheaper products.
It is our price positioning which has made us the market leader, combined with our quality and accessibility, and we have actually seen an increase in new customers during the Lipstick Effect cycle as a result of strategic pricing. It is less about dropping your prices to accommodate lower incomes and inflation, and more about putting your price in the right place, at the right time, and in front of the right people.
Think outside of the product box
Should history repeat itself in the consumer-retail space, now is the beauty and lifestyle sector’s time to shine. Instead of splurging on an expensive handbag or pair of shoes, data shows that consumers will lean towards a luxury beauty product in the wake of an economic crisis, or while under financial stress.
Many large-scale retailers have been seen to make this move in the last two years, such as Zara who released their first full range of colour cosmetics in May 2021. It did this without scrimping on the details which their existing consumers love: affordable, fashion-focused essentials with vegan and cruelty-free creation still considered.
If you’re a brand who has been considering adding additional lines to your range, now is the time to do it.
Analyse, adapt and ask questions
Ask questions. What constraints do we have from our suppliers? What issues can we expect in the next six to 12 months? How do we best work through these issues to ensure we meet our company objectives? How are our competitors meeting this issue?
The Lipstick Effect is not one that comes around too often, and bears little logic. If consumers have less money to spend, why are they spending more on smaller items? We hear you! The hack is finding the right mix of all of the components which make you a sale. For us, this is quality, affordability and accessibility; a formula that we transitioned across into suncare and skincare, and something that our customers have become accustomed to over the years, and over competitors.
Once you know your formula, and what makes your customers tick, you can take into account the impacts of the Lipstick Effect. Remember that consumers are still looking for quality, if not more so than usual, and they are not necessarily committed to spending less. They are looking for emotional mood boosters which mirror the mood of the times. Once you can tune into them, and get your supply team on board, the Lipstick Effect could actually end up growing your business. Now is your chance to explore new territories.
About Bondi Sands: Bondi Sands is an Australian self tanning, suncare and skincare brand. The Australian-born company is the number one self tanning brand in the world, and the largest manufacturer of tanning goods in Australia. It has a large global presence, especially within the Australia, NZ, UK, Europe and US markets. To date, Bondi Sands products are stocked in over 30,000 retail stores worldwide.
