Why are we queuing for lip gloss during a cost-of-living crisis? The lipstick effect, explained.

By Aishah Ahmed

On a weekday morning in Sydney, the line outside MECCA stretches down the block. Not for a new restaurant. Not for a trendy café. For skincare. This was the scene at the Australian launch of Rhode, Hailey Bieber's skincare brand. Despite an ongoing cost-of-living crisis, consumers showed up in force. Products sold out, social media flooded with glossy hauls, and flagship stores in capital cities were packed wall to wall. At a time when rising rent and grocery bills dominate every dinner table conversation, queuing for lip gloss feels, at best, paradoxical. At worst, a little unhinged. Economics has a name for this: The lipstick effect. The idea is simple. During downturns, people don't stop spending, they spend differently. Rather than cutting out treats entirely, we trade down to smaller, more affordable versions of the same feeling. An unaffordable renovation becomes an overpriced lip gloss. A holiday becomes a “daily sweet treat” upwards of $15. Consumption doesn't disappear. It just gets a little more creative, and right now, the conditions are ripe for it. 

Nothing says rising COL pressures like a 2hr wait for skincare products!

Australian inflation is currently sitting at 3.7%, still above the RBA’s 2–3% target, while the cash rate remains elevated at 4.1%. At the same time, unemployment has edged up to 4.3% and real household disposable income has been contracting. Even as inflation begins to moderate, price levels remain high, sustaining pressure on household budgets. On paper, the Rhode launch is a textbook example of the lipstick effect. As budgets tighten, the substitution effect kicks in: we trade expensive indulgences for cheaper ones that scratch the same itch. A lip treatment isn't a splurge. It's essentially self-care on a budget.

But that explanation only gets us so far. 

Because the frenzy around Rhode wasn’t purely about price, it was about market positioning. Through controlled distribution, heavy branding, and perceived scarcity, the brand engineered demand in a way that mirrors a supply constraint. Its exclusive retail through MECCA effectively increased perceived value, allowing a relatively low-cost product to behave like a premium good.

From an economic perspective, this reinforces the lipstick effect. As real incomes contract, the income effect shifts consumers away from high-cost discretionary spending, while the substitution effect redirects demand toward smaller, more attainable luxuries. Beauty products sit within the “affordable luxury” segment and tend to have lower income elasticity than traditional luxury goods. Industry performance reflects this uneven adjustment. Firms such as Estée Lauder have reported declining sales and restructuring, signalling softer discretionary demand, while LVMH has recorded slower growth in its beauty division. Demand has not disappeared, but become more selective, concentrating on brands able to capture attention and justify perceived value. 

So our question isn’t why consumption persists, but how it reallocates under constraint.