The Lipstick Issue – July 2020

Celebrating National Lipstick Day July 29th, 2020

Time to buy a lipstick or two.

Lipstick, Lip Gloss, Lip Stain, Lip Ink, Lip Balm, Sheer Lipstick, Matte or Crème, Lip Liners, Lip Brushes. Anything Lips is a global enterprise. 

In a world of masks, I wonder what is happening to the Lipstick Industry? Are women buying more or less lipstick?

Before I delve into one of the most colorful areas of investing, I have a little quiz for you.

Listed below are four global cosmetics companies. Can you match the company with the brand they own?

*Answers are at the bottom of the page

These four companies dominate the global cosmetics market [1]. You see the brands they own in every drugstore, department store, airport duty free store and shopping mall. 

As an investor, the “mask over the lipstick” issue is a real thing. If I decide to buy stock in any of these companies, what is the outlook for sales and revenue? Distribution? When normal channels to buyers are suddenly shut down, will they be able to make money?

There are plenty of theories that say when the economy is in a recession, women will continue to buy lipstick. If we had a “Lipstick Index” we could prove this theory but there is no scientific data to support an index.

Buying a lipstick can be a substitute for the delayed purchase of something more expensive.  Lipstick is an affordable “luxury”.

Feel like a little pop of color or a fun diversion in times of economic stress? A good balm can feel luxurious on parched mask wearing lips.

Data on lipstick sales is difficult to find because lipstick is lumped into the cosmetics/makeup category. Publicly available information from companies like L’Oréal or Estee Lauder do not break out “lips” in their financial statements.

We can see geographic areas where there is strong growth. The Asia Pacific is one area. Or we can compare sales in cosmetics from this year to last year. 

But it is too soon to know how an unexpected event, the pandemic, will impact the sales of cosmetics going forward.

This is the challenge of investing. I am putting on a little lip stain while I figure this out. 

What could improve lipstick growth?

Companies could pivot from cremes and mattes to a wider selection of lip stains and inks. The stuff that really stays on. Stains and inks are relatively new to the lip market and color choices are somewhat limited. If I were in charge, I would expand the selection.

How do you sell lipsticks and color online? Would YOU buy a lipstick online? I admit I have, and it didn’t turn out very well. The colors were off, and the consistency was not what I expected.

Today you can try on a color “virtually”. I tried it. This is what happened:

A picture of lips in the color I was looking at comes up on the screen. The camera is on, and I had to move the camera to fit my lips into the picture. Otherwise I was looking at a pair of Berry lips on my chin.

I have a hard time imagining woman flocking back to makeup counters to try on lipstick with tiny plastic spatulas. And with a mask on? Really hard to tell how that color looks on you.

I was happy to see that companies who sell lipstick are in the consumer staples sector in the S&P 500. 

Consumer Staples [1] is the “can’t live without it” category like food and water. During the pandemic, companies in the Consumer Staples sector are holding up relatively well compared to other sectors.

I am going to assume that in the geographic areas where the pandemic is not keeping stores closed and people at home, lipstick sales will continue to grow. 

So how do I equate buying lipstick with investing?

My theory is that if you can choose 20 lipstick colors you like out of the thousands of colors available you can choose 20 stocks to invest in.

Buy a lipstick or two today!

Answers:

1 c. L’Oréal owns Kiehl’s

2 a. Coty owns Kylie Cosmetics

3 d. Estee Lauder owns MAC

4 b. Shiseido owns Laura Mercier

See what other brands these companies own. You might be surprised!

https://www.loreal.com/en/our-global-brands-portfolio/

https://www.coty.com/brands

https://www.elcompanies.com/en/our-brands

https://corp.shiseido.com/en/americas/

[1] The Annual Report for L’Oréal shows you the scope of the global cosmetics industry. Skin care is the number one category in sales.

https://www.loreal-finance.com/system/files/2020-03/LOREAL_2019_Annual_Report_3.pdf

see page 22

See what other companies are in the Consumer Staples sector:

Sector Primer Series: Consumer Staples – S&P Global

www.spglobal.com › spdji › documents › education › e…

The Consumer Staples sector is the seventh most heavily weighted of the 11 sectors within the S&P 500. As of Dec. 31, 2018, the sector represented 7.41% of the S&P 500 (see Exhibit 2).

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.