Rising inflation and soaring energy bills are biting at consumers' wallets at every turn – and it seems a global recession could soon be a frightening reality.
But while the ‘lipstick effect’ has previously benefited the beauty industry, the current cost of living crisis seems more uncertain.
A reliance on the feel good factor to drive luxury beauty sales is no longer a given when consumers are struggling to afford day-to-day basics such as heating and petrol.
“Traditionally, beauty booms during economic uncertainty, but today’s crisis feels different,” says Sarah Coonan, Managing Director of Retail at London-based luxury department store Liberty.
“Retailers will have to fight hard to offer added value and exceptional products to ensure consumers still see luxury beauty as a necessity.”
The effects of the crisis are already being felt across all beauty categories.
Meanwhile, a quarter of women globally have given up their favourite fragrance due to financial challenges, found data by Avon.
“Retailers will have to fight hard to offer added value and exceptional products to ensure consumers still see luxury beauty as a necessity"
- Sarah Coonan, Managing Director of Retail at Liberty London
A reduction in consumer spending does pose a threat to the survival of the prestige market, but the current crisis also provides luxury retailers with a brand-building opportunity.
Many are revamping their reward propositions to strengthen customer loyalty, with a focus on value-added promotions rather than just discounting.
But is this enough for luxury beauty retailers to maintain their relevance and keep customers loyal, especially as the economic situation gets worse?
A changing environment
Many retailers are wary of one major changing consumer behaviour – a potential shift to discount shopping.
The industry standard of discounting in reward schemes to drive loyalty usually has an affinity to the lowest bidder, but this does not help when prestige retailers are trying to maintain full price sales.
“In the short term, discounting is great for the customer, but in the long term, it damages the industry,” says Coonan.
“It creates a race to the bottom and a mass of sameness.”