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Analysing Habit Persistence, Pricing and Inflation's Impact on Lipstick Prospects 2023 and Onward

2/15/2023
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High commodity prices and supply chain disruptions are to continue to set the global economy on a course of slower growth and high inflation in 2023. Amid rising prices in beauty and personal care, inflation is having a combined effect with other variables that could affect consumption. Euromonitor International takes a closer look at a category that is often used to test the resilience of colour cosmetics during periods of downturn - lipstick, which is recording lower rates of daily usage, higher rates of promotional activity, and tighter inventories.

Daily lipstick usage is down globally in 2022

Lipstick remained part of many consumers’ daily routines in 2022, according to 27% of global respondents from Euromonitor International’s Beauty Survey. Lipstick also registered the highest daily usage rates compared to lip gloss, lip liner, and tinted lip balm. However, daily usage of lipstick is decreasing.Analysing Habit Persistence, Pricing and Inflation's Impact on Lipstick Prospects 2023 and Onward Chart 1.svgStreamlined routines due to remote working or hybrid lifestyles are contributing to changes in lipstick consumption, despite pent-up demand for colour cosmetics and an easing of mask mandates. Weekly, monthly and sporadic usage are also declining. A “less is more” aesthetic that favours subtle looks is also affecting daily usage, corroborated by data that shows a higher number of respondents wear lipstick for special occasions (28% in 2022, up from 24% in 2019).

With consumption down, players are being more conservative with new launches and product assortments. Euromonitor International’s Via Pricing Sample found that in 2022, online SKUs of lipstick declined by 6%, after growing by 7% in 2021 and 20% in 2020. Overstock likely contributed to fewer lipstick SKUs, as brands and retailers worked to offload excess inventory.

Lipstick prices marginally increased in 2022. The median average price change in online SKUs of lipstick increased by USD0.32 among a sample of 40 countries, with prices rising in 21 countries. Among the top 10 lipstick markets, median average prices rose the highest in China and the UK, but declined by USD1.35 in the US. High overstock from 2021 led to increased promotional activity and fewer launches as brands waited for the return of consumer demand.

Greater discounting for lipstick in the US to offload excess inventory, with prices fluctuating among brandsAnalysing Habit Persistence, Pricing and Inflation's Impact on Lipstick Prospects 2023 and Onward Chart 2.svg

The US is the world’s second largest lipstick market (behind China), as of 2021. In 2021, 52% of online lipstick SKUs in the US registered some type of promotion (such as “gift with purchase” or “save 15%”), up from 42% in 2020. It is possible that higher promotional activity in 2021 influenced higher usage rates of lipstick, since US respondents who used lipstick daily rose from 10% in 2020 to 14% in 2021. Q4 2021 likely set the tone for greater promotional activity in 2022, to keep lipstick pricing accessible while consumer demand caught up. However, players have also had to increase prices in response to higher raw material and shipping costs.Analysing Habit Persistence, Pricing and Inflation's Impact on Lipstick Prospects 2023 and Onward Chart 3.svgA closer look at the US market and select premium brands reveals that not every brand has been raising prices to the same degree. In the US, Estée Lauder’s lipstick price in 2021 stayed within 10% of its January price, but climbed drastically in the last quarter of 2022, amounting to an average unit price of USD32.01 for the full year. The latest quarterly results from Estée Lauder Companies Inc referenced tightening inventory in the US and slower than anticipated demand, so price increases for lipstick are arguably untimely amid recovering brand sales.

In contrast, L’Oréal Groupe’s Urban Decay witnessed wider price fluctuations. The brand’s median average lipstick price of USD19.00 in 2022 maintained its premium positioning, but because of this more accessible price point, the brand has greater leeway to raise prices without alienating consumers in the long term.

Inflation is one reason for price increases in lipstick, but so is price evolution

Inflation is having a profound impact on beauty and personal care. According to Euromonitor International’s Voice of the Industry Survey, approximately 50% of global beauty and personal care industry respondents reported that inflation extensively impacted their business in 2022. In response to inflation, 48% of beauty and personal care professionals stated that they had raised prices on some products and services, while 34% raised prices on all products and services.

However, higher prices of lipstick can also function as part of the price evolution through value creation. “Skinification” is impacting lipstick prices, since consumers increasingly expect concentrated skin care ingredients, like sunflower seed oil and rosemary leaf extract, to be included in new lipstick launches. Brands are also introducing innovative ways for consumers to experience lipstick; for instance, to achieve and activate full colour intensity, consumers must shake L’Oréal Groupe’s Urban Decay Vice Lip Bond for five seconds. While inflation will persist as a key concern among consumers in 2023, its negative impact on lipstick demand is more likely to be offset by other factors.

Habit persistence helps drive future lipstick growth, while pricing has negative effect

According to Euromonitor International’s Forecast Model, which examines various forecast drivers, habit persistence (or rather, the lack of) negatively affected lipstick growth in 2021, but is expected to turn positive from 2022 onward.

Analysing Habit Persistence, Pricing and Inflation's Impact on Lipstick Prospects 2023 and Onward Chart 4.svgOn the other hand, product pricing remains a negative contributor to lipstick growth, forecasting an almost -4% driver effect in 2022 and approximately -1% in 2023. Lipstick players that have drastically raised prices since January 2021 should be attentive to consumers’ price sensitivity to avoid trading down to cheaper brands, or to seek promotional deals from comparable players. Inversely, lipstick players that have been heavily dependent on promotional activity should question whether their current pricing strategies are fully leveraging an anticipated 2023 upswing in demand.

Lipstick expectations underline consumption shifts in overall beauty

Considering that even the strictest of countries (such as China) are eliminating COVID-19 policies, the beauty industry is anticipating consumer appetite for lipstick in 2023. Lipstick prices are likely to rise, as retailers and brands recoup sluggish historic sales, respond to higher material costs, and/or invest in more sophisticated formulations and packaging. However, amid a backdrop of consumer pricing sensitivity, simplified routines, and inflation, the impact on lipstick and the overall beauty market is becoming more nuanced.

Inflationary pressures bode well for beauty brands that are utilising price accessibility (miniature packaging), multifunctional formulations, and other value creation strategies (private label, masstige tiers, justifying quality credentials) - all of which will be highly influential on consumer demand in 2023. The uneven impact speaks to the need to track beauty’s performance at a more local level, including an examination of brands, suppliers, and retailers.

For further insight, read our report Beauty and Personal Care: Half-Year Update 2022

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