🦄 vol. 50
lipstick, champagne and underwear 📉
This past weekend in a nutshell: The Springboks took an L and my beloved football team went down 4-0 to Brentford. I’m down bad 🤕. But hey, so is the global economy.
If you haven’t heard already, it’s been well covered that the world is on the “edge of a global recession”. Karl did a great job of breaking down what this might mean for venture capital funding in vol. 42, but I thought I’d look at things from a slightly different angle: consumer behaviour.
First, a quick recap ⏮
Definition 📖: As per Investopedia, a global recession can be defined as an extended period of economic decline around the world.
Implications 👀: The drop in gross domestic product (GDP) generally coincides with a weakening of other macroeconomic indicators, such as trade, capital flows, and employment.
How’d we get here again? 🤔
The International Monetary Fund (IMF) recently released a report where it predicted significant slowdowns in the three biggest economies in the world: USA, China and Europe.
Some of the (simplified) underlying reasons include:
🇺🇸 Diminishing consumer spending power in the USA.
🇪🇺 The impact of the Russia and Ukraine war on European economies.
🇨🇳 The property crisis and the ongoing effects of COVID-19 lockdowns in China.
And while the IMF uses several criteria to officially identify a global recession, there are some pretty bizarre indicators of economic downturns that have supposedly stood the test of time too…
Unconventional indicators 🤯
Here are a few (consumer-driven) recession indicators to chew on:
The lipstick effect ⬆️💄: This is the notion that in an economic downturn, consumers treat themselves to help them forget about their financial problems. But instead of dropping 💰 on big luxury items, cash-strapped consumers spend money on smaller indulgences… like lipstick.
Champagne index ⬇️🍾: While generally associated with times of celebration, history tells us that champagne sales spike during times of economic boom. Similarly, sales slump during times of economic gloom.
Men’s underwear index ⬇️🩲: This recession indicator is based on the observation that undies tend to be the last item of clothing that men replace. And when money is tight, men defer buying new ones for even longer. Basically, when men’s underwear sales go down, the economy is soon to follow.
It’s still a bit early to find the data across many of the unconventional indicators, but we do know that lipstick sales have been climbing - Forbes reports that Q1’22 sales were 48% higher than the same time last year*, and grew more than twice as fast as other products in the beauty category. 👀
*The drop in global mask mandates likely had a role to play in this growth too.
So what does this all mean? 🤔
Don’t worry, I’m not judging you for wearing the same pair of undies since 2018, nor am I here to make recession predictions. But what’s more interesting is that, through historical economic downturns, these unconventional indicators have highlighted a few key consumer insights:
Consumers do not have the same levels of spending power.
Consumer sentiment is bleak.
There’s a consumer shift towards practical buying.
Implications and considerations 🤓
In the midst of a looming economic downturn, the way that products and services are perceived by consumers will play a big role in whether demand is (positively or negatively) impacted. I think all business-to-consumer (B2C) firms should be preemptively asking themselves questions such as:
Are my goods / services priced appropriately? 🏷
How do my goods / services make consumers feel? 🥰
Are my goods / services perceived as a nice-to-have or as a necessity? 🛍
According to the IMF, it looks like we could be in for a tough few months. Don’t be surprised if you find yourself stocking up on your Kylie Cosmetics, or holding off on that bottle of Moët and waiting a little longer before buying that new pair of Calvin Kleins. 😉
sash
sash enjoyed this article about android’s beef with apple over green text messages
for a longer read, matt enjoyed this overview of the telehealth space
sticking to telehealth, karl enjoyed scott galloway’s take on amazon’s one medical acquisition