Expensive Scents Open Wallets... 'Small Luxury' Trend Amid Recession [Jumunetalk]

LVMH Sees Perfume and Cosmetics Growth Despite Sales Decline
Luxury Cosmetics Gain Popularity During Economic Downturns... The "Lipstick Effect"
Luxury Brands like Prada Strengthen Perfume and Beauty Market Strategies

Editor's NoteIt is an era where one serving of Samgyeopsal costs 20,000 won, and a bowl of Jajangmyeon is 7,500 won. The consumer price index for 2024 stands at 114.18 (2020=100), and in 2025, the burden on consumers' shopping baskets has increased due to continued high inflation. Through the Pocket Talk (Week+Money+Talk) series, we aim to share stories about consumption closely connected to our wallets alongside the ever-changing prices.

A citizen is choosing a lipstick at a department store cosmetics counter. Lotte Shopping

In an era of high inflation, 'small luxury' remains popular. This refers to a consumption trend where satisfaction is gained through relatively reasonably priced products such as cosmetics or niche perfumes instead of high-priced items like foreign cars, luxury clothing, or jewelry. Luxury brands are responding to this trend by strengthening their beauty lines, including perfumes and cosmetics.

LVMH Sales Decline but Perfume and Cosmetics Show Growth

As high inflation dampens consumer sentiment, luxury brand sales are declining. Last year, the world's largest luxury company LVMH (Louis Vuitton Mo?t Hennessy), which owns Louis Vuitton and Dior, recorded sales of 84.683 billion euros (approximately 133.451 trillion won), down 1.7% from the previous year.

Specifically, sales in the fashion & leather goods and watches & jewelry categories decreased by 2.6% and 3%, respectively. Particularly, the alcoholic beverages category suffered the largest hit, plunging 11% from 6.6 billion euros (about 10.4103 trillion won) in 2023 to 5.86 billion euros (about 9.2431 trillion won) in 2024. This is attributed to reduced consumption of premium wines and spirits due to the global economic slowdown and exchange rate fluctuations.

On the other hand, sales in the relatively affordable perfume and cosmetics categories showed growth. LVMH's perfume and cosmetics division sales increased by 2% year-on-year, and the specialty retail segment, including Sephora, a perfume and cosmetic beauty retailer, also grew by 2%. LVMH stated, "Sephora achieved double-digit growth in both sales and operating profit, showing particular strength in the US and UK," and added, "We are strengthening our position as a perfume and cosmetics retailer."

Luxury Cosmetics Gain Popularity During Recessions... The 'Lipstick Effect'

Pixabay

This consumption trend is related to the 'Lipstick Effect.' The Lipstick Effect refers to the phenomenon where consumers, during economic downturns, derive satisfaction by purchasing relatively affordable luxury cosmetics or perfumes instead of expensive luxury goods.

This consumption pattern has repeated during past economic crises. During the Great Depression in the US from 1929 to 1933, industrial production halved, but cosmetics sales increased by 25%. After the 9/11 attacks in 2001, lipstick sales in the US rose by 11%, and during the 2008 global financial crisis, cosmetics sales increased, drawing attention to the Lipstick Effect. Reflecting this consumer sentiment, the US cosmetics brand Est?e Lauder introduced the Lipstick Index in 2001, showing the correlation between lipstick sales and economic indicators.

Luxury Brands like Prada Strengthen Perfume and Beauty Market Strategies

Pixabay

The Lipstick Effect is also evident domestically. Amid economic uncertainty, the number of consumers seeking luxury cosmetics has significantly increased. Last year, sales at luxury cosmetics stores in the three major domestic department stores (Shinsegae, Lotte, Hyundai Department Store) rose by 16-24%. Lotte Department Store's luxury cosmetics sales increased by about 20%, Shinsegae Department Store by 16.3%, and Hyundai Department Store by 24.0%. During the same period, the sales growth rates for luxury (fashion) items at each department store were only about 5%, 6.2%, and 11.7%, respectively.

In response, luxury brands are further strengthening their perfume and beauty lines. Louis Vuitton announced it will launch a cosmetics line for the first time since its founding in 1854. The 'La Beaute Louis Vuitton' cosmetics line is expected to be introduced this fall. Italian luxury brand Prada also entered the beauty market by launching 'Prada Beauty' in 2023 and is expanding its domestic stores.