June 11, 2025 • 6 mins
Join Sean Aylmer & Michael Thompson as they answer questions on business, investing, economics, politics and more.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Welcome to Ask Fear and Greed, where we answer questions
about business, investing, economics, politics and more. I'm Michael Thompson
and hello Sean al Michael. This one falls into the
economics category, doesn't it?
Speaker 2 (00:15):
Sort of?
Speaker 1 (00:16):
It actually does, But it's not really a number as such,
is it. It's it's more of a trend. You know.
Maybe I'll just ask the question and let you answer, Sean.
What is the lipstick index?
Speaker 2 (00:30):
Is the great index? So the idea is that when
facing an economic crisis, consumers are more willing to buy
less costly luxury goods. So this is not just the rich,
it's the rich and the poor, or the rich and
the middle class, shall we say so? The rich instead
(00:52):
of buying expensive purses and fur coats, they just buy
expensive cosmetics, like high end brands of lipstick. The middle
class they want to treat themselves, but they're not going
out for dinner, They're not doing that sort of thing,
so they go and buy lipstick. What's cool about this?
Lennae Leaed Louder as in Stay Louder, the Louder Family.
(01:17):
After the September eleven attacks in two thousand and one,
the economy went into recession, he just was really surprised
by how lipstick sales went through the roof. So a
few years later he just went through the company's sales
of lipstick and said, this is really weird that in
a downturn in economic recession, lipstick sales have gone through
(01:41):
the roof. And so this is how this hypothesis came up.
The idea is that lipstick's an affordable luxury, like a
small treat. You're not breaking the bank. You can just
you know, you feel better about yourself. It's an indulgence
even in the tough times.
Speaker 1 (01:56):
It's like a self care thing.
Speaker 2 (01:58):
Yeah when.
Speaker 1 (02:00):
And pretty much any socioeconomic group is able to still
afford a type of it, yes, right, and so it
is resilient, it.
Speaker 2 (02:12):
Is, and like there's more to it than just after
the September eleven attacks. So there's a lot of literature
that after World War II, places like Chanelle di or
Eve Saint Laurent, they sort of pushed towards luxury, cheap
luxury products. I mean, lipstick's a great example of it.
Because there was sort of empowerment of women in the
(02:33):
fifties and particularly the sixties who wanted affordable luxuries and
they couldn't really buy designer bag or suit. They could
buy perfume or cosmetics.
Speaker 1 (02:45):
So when we talk though about the lipstick index, what
does it actually tell us is there when lipstick sales
go up, is that kind of does that correlate with
a downturn in the economy or is it just the
fact that there is just this trend. Notice that lipstick sales,
for instance, as an example of that kind of tier
(03:05):
of cosmetic products, are fairly resilient regardless.
Speaker 2 (03:09):
So the problem with the lipstick index, and this is
the heart of what you've did asked, is that there's
no empirical evidence that it works. Okay, so in economics,
I remember in first year economics, there's something called a
Giffen good and a giff and good GI double fen.
The more expensive it is, the more people buy, So
(03:29):
it works totally the opposite to demand supply. And this
is sort of a little bit in that area whereby
when people can't afford stuff, they tend to buy lipstick.
Like lipstick isn't it doesn't really fit the definition of
a gift and good, but it's somewhere in that area. Now,
(03:50):
there has been recessions since two thousand and one. There
has been a sort of empirical analysis of this and
it just doesn't quite hold, which really really is quite
disappointing because I love the idea of the lipstick index.
Speaker 1 (04:06):
I love the fact that you kept that for the end.
We got right to the very end, and then you said,
you know what.
Speaker 2 (04:11):
It doesn't really work. So Domino's Pizza. Domino's Pizza have
its share price and sales therefore its share price have
sometimes done really really well in downturns. So after COVID
for example, or was during COVID, actually Dominoes did incredibly
well because people they don't can't afford to go out
(04:32):
for dinner, but they can't afford to buy Domino's pizzas,
and so it's kind of a bit the same, the
Domino's Pizza effect. I don't think that's going to hold.
But the problem with all these theories there's not a
lot of empirical evidence, but they're great stories.
Speaker 1 (04:48):
Okay, you know, we might have to do a subsequent
it's a hard word for me to say today on
a follow up episode on a couple of other indexes,
like the mac index and things which I find though
they are fascinating, and those ones are there is a
bit more behind those ones in terms of the numbers
and the comparisons and what you can tell from that.
(05:09):
But we shall park the big mac index for now,
and we shall wind the lipstick index back into its container,
lipstick tube. I don't know, I don't know, no anyway,
not particularly familiar with it. And you know what I
think we have done here.
Speaker 2 (05:26):
We have successfully put to put better any idea that
the lipstick index works.
Speaker 1 (05:31):
Yep, also put lipstick on a pig. And we've done
our best. Thank you, sure, thank you.
Speaker 2 (05:39):
Michael.
Speaker 1 (05:40):
Oh got it fell apart there at the end, isn't it.
If you've got your own question that you would like
to ask us, you can pop it onto an email
via the website Fear and Greed dot com dot au,
or head along to any of the social media platforms
Instagram LinkedIn Facebook, send you a question on through and
we will answer it asap. I'm Michael Thompson and that
was asked Fear and Great
Welcome to Ask Fear and Greed, where we answer questions
about business, investing, economics, politics and more. I'm Michael Thompson
and hello Sean al Michael. This one falls into the
economics category, doesn't it?
Speaker 2 (00:15):
Sort of?
Speaker 1 (00:16):
It actually does, But it's not really a number as such,
is it. It's it's more of a trend. You know.
Maybe I'll just ask the question and let you answer, Sean.
What is the lipstick index?
Speaker 2 (00:30):
Is the great index? So the idea is that when
facing an economic crisis, consumers are more willing to buy
less costly luxury goods. So this is not just the rich,
it's the rich and the poor, or the rich and
the middle class, shall we say so? The rich instead
(00:52):
of buying expensive purses and fur coats, they just buy
expensive cosmetics, like high end brands of lipstick. The middle
class they want to treat themselves, but they're not going
out for dinner, They're not doing that sort of thing,
so they go and buy lipstick. What's cool about this?
Lennae Leaed Louder as in Stay Louder, the Louder Family.
(01:17):
After the September eleven attacks in two thousand and one,
the economy went into recession, he just was really surprised
by how lipstick sales went through the roof. So a
few years later he just went through the company's sales
of lipstick and said, this is really weird that in
a downturn in economic recession, lipstick sales have gone through
(01:41):
the roof. And so this is how this hypothesis came up.
The idea is that lipstick's an affordable luxury, like a
small treat. You're not breaking the bank. You can just
you know, you feel better about yourself. It's an indulgence
even in the tough times.
Speaker 1 (01:56):
It's like a self care thing.
Speaker 2 (01:58):
Yeah when.
Speaker 1 (02:00):
And pretty much any socioeconomic group is able to still
afford a type of it, yes, right, and so it
is resilient, it.
Speaker 2 (02:12):
Is, and like there's more to it than just after
the September eleven attacks. So there's a lot of literature
that after World War II, places like Chanelle di or
Eve Saint Laurent, they sort of pushed towards luxury, cheap
luxury products. I mean, lipstick's a great example of it.
Because there was sort of empowerment of women in the
(02:33):
fifties and particularly the sixties who wanted affordable luxuries and
they couldn't really buy designer bag or suit. They could
buy perfume or cosmetics.
Speaker 1 (02:45):
So when we talk though about the lipstick index, what
does it actually tell us is there when lipstick sales
go up, is that kind of does that correlate with
a downturn in the economy or is it just the
fact that there is just this trend. Notice that lipstick sales,
for instance, as an example of that kind of tier
(03:05):
of cosmetic products, are fairly resilient regardless.
Speaker 2 (03:09):
So the problem with the lipstick index, and this is
the heart of what you've did asked, is that there's
no empirical evidence that it works. Okay, so in economics,
I remember in first year economics, there's something called a
Giffen good and a giff and good GI double fen.
The more expensive it is, the more people buy, So
(03:29):
it works totally the opposite to demand supply. And this
is sort of a little bit in that area whereby
when people can't afford stuff, they tend to buy lipstick.
Like lipstick isn't it doesn't really fit the definition of
a gift and good, but it's somewhere in that area. Now,
(03:50):
there has been recessions since two thousand and one. There
has been a sort of empirical analysis of this and
it just doesn't quite hold, which really really is quite
disappointing because I love the idea of the lipstick index.
Speaker 1 (04:06):
I love the fact that you kept that for the end.
We got right to the very end, and then you said,
you know what.
Speaker 2 (04:11):
It doesn't really work. So Domino's Pizza. Domino's Pizza have
its share price and sales therefore its share price have
sometimes done really really well in downturns. So after COVID
for example, or was during COVID, actually Dominoes did incredibly
well because people they don't can't afford to go out
(04:32):
for dinner, but they can't afford to buy Domino's pizzas,
and so it's kind of a bit the same, the
Domino's Pizza effect. I don't think that's going to hold.
But the problem with all these theories there's not a
lot of empirical evidence, but they're great stories.
Speaker 1 (04:48):
Okay, you know, we might have to do a subsequent
it's a hard word for me to say today on
a follow up episode on a couple of other indexes,
like the mac index and things which I find though
they are fascinating, and those ones are there is a
bit more behind those ones in terms of the numbers
and the comparisons and what you can tell from that.
(05:09):
But we shall park the big mac index for now,
and we shall wind the lipstick index back into its container,
lipstick tube. I don't know, I don't know, no anyway,
not particularly familiar with it. And you know what I
think we have done here.
Speaker 2 (05:26):
We have successfully put to put better any idea that
the lipstick index works.
Speaker 1 (05:31):
Yep, also put lipstick on a pig. And we've done
our best. Thank you, sure, thank you.
Speaker 2 (05:39):
Michael.
Speaker 1 (05:40):
Oh got it fell apart there at the end, isn't it.
If you've got your own question that you would like
to ask us, you can pop it onto an email
via the website Fear and Greed dot com dot au,
or head along to any of the social media platforms
Instagram LinkedIn Facebook, send you a question on through and
we will answer it asap. I'm Michael Thompson and that
was asked Fear and Great
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