Read my lips: we are suffering a downturn

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The "lipstick effect", coined by Estée Lauder chairman Leonard Lauder, is an unofficial indicator that in times of recession consumers will shy away from spending on big luxuries, such as new cars and designer dresses, and will splurge instead on less expensive indulgences, such as lipstick.

Those who endorse this indicator trace it back to the Great Depression, when cosmetics sales jumped 25% in the US, despite the economy’s collapse.

At current prices, January’s retail data showed an 11.8% year-on-year rise in sales of pharmaceuticals, medical goods, cosmetics, and toiletries.

This grouping of goods has shown steady year-on-year growth since August last year, never falling below 7.2%. Other categories have shown varying degrees of volatility.

Marketing and brand manager at Clicks Group Sylvie Hurford says that in times of economic hardship, women have historically employed little luxuries in their daily routine to retain their dignity, humaneness and sense of self.

"We have seen considerable growth of colour cosmetics in the recent months and, given the weight of foundations in customers’ baskets, it would seem that foundation is ready to substitute lipstick as a barometer of economic climate. In addition to this, we’ve had exceptional growth in fine fragrances."

Hurford says customers are increasingly drawn to bold, on-trend colours for nails and lips to cheer themselves up.

Estée Lauder says it saw powerful growth in its make-up and luxury brands for its financial year ended-June 2015. Sales in emerging markets, excluding China, rose 26%, led by Turkey, Brazil and SA.

"We saw strong growth in lipstick sales across our brands," says Estée Lauder. Revlon SA, the dominant player in the South African market, with an estimated 33% of market share, declined to comment.

The latest data available from the Department of Trade and Industry show that the local cosmetic and personal care industry was worth an estimated R25.3bn and contributed 1% to the gross domestic product in 2010.

But not everyone is convinced that spending on small luxuries will be able to keep retail sales afloat. Head of corporate ratings at Global Credit Ratings Eyal Shevel says the effects of inflation and interest rate hikes could cause further stagnation in the growth of South African retail groups, which are already under severe pressure from the weakened rand.

The FNB/BER consumer confidence index for the first quarter of this year remained depressed, measuring -9.

Rising consumer confidence usually points to rising retail sales. The opposite is also usually true. "Expectation gauges regarding the household financial position and general economic prospects over the coming year, although having improved, remained relatively suppressed (in the first quarter). Depressed consumer confidence will continue to manifest in damped activity in the consumptive sectors of the economy," Investec economist Kamilla Kaplan says.

Investec expects retail sales growth to show moderation in February at 2.8% year-on-year, from 3.1% in January.

Another retail item used as an indicator during a recession is men’s underwear. Former Federal Reserve chairman Alan Greenspan famously espoused the theory, positing that a downtick in underwear sales could foreshadow an economic downturn.

The "hemline index" is also popular. Put forward in 1926 by economist George Taylor, the theory is that women’s hemlines tend to follow the economy’s performance.

Skirts tend to get shorter during boom times, while ankle-length hemlines signify recession.

Whether there is an actual economic correlation in SA between lipstick sales and the economy remains to be seen.

A number of local economists were hesitant to confirm or deny the possibility of a link.

"What I can say is that retail sales are unlikely to show a pick-up this year, regardless of how hot lipsticks sales are. My lips don’t lie," one economist says.

The South African cosmetic market is forecast to experience a boom in the long term.

A report by Who Owns Whom, an independent research organisation in SA, says the country will be the "next consumer hotspot".

"Global demand for multifunctional products and men’s grooming products is expected to increase, and the escalation of e-commerce as a distribution channel looks set to continue," it says.

"Regional spending power in sub-Saharan Africa is predicted to reach $2-trillion by 2020, thus presenting opportunities for companies with the right goods and services and an appropriate strategy."