The Lipstick Index & How Companies Are Balancing Profit Projections, Inflation, and Layoffs
The further a role is from revenue generation, the more likely it is for that employee to be axed.
The economic downturn and looming worries of a possible recession have piled on to the fashion industry’s supply chain issues and other operational problems that surfaced during the pandemic. Glossier is in the news again with more layoffs — the beauty brand laid off 24 employees ahead of its transition from its founding direct-to-consumer model to an omnichannel model with Sephora in the U.S. and Canada. Walmart slashed its profit outlook and laid off nearly 200 corporate employees. More layoffs are expected to be announced — often with layoffs, when one company announces the move, a competitor shortly follows suit.
E-commerce sales are flat after skyrocketing in 2020 and 2021. In-store foot traffic has yet to return to pre-pandemic levels — coupled with the years-long decline of department stores, the retail sector looks grim amid record inflation and fear surrounding consumer demand. Everyone is on alert for a possible recession because the U.S. economy shrank for a second straight quarter, raising the chances of a recession. Currently, the inflation rate in the U.S. is at an astronomical 9 percent, which undercuts consumer spending. A generally acceptable inflation rate amongst policymakers sits around 2 percent or a bit lower. Under these economic conditions, companies turn to layoffs to solve their financial woes — and the further a role is from revenue generation, the more likely it is for that employee to be axed.
The Lipstick Index
Based on the Lipstick Index, analysts are predicting economic doom. The Lipstick Index was coined in 2001 by Leonard Lauder, chairman emeritus of The Estée Lauder Companies. It pertains to the behavioral phenomenon where consumers facing economic uncertainty shift their spending more towards small pleasures — such as cosmetics. When sales of lipstick are on the rise, stocks and the gross domestic product could be headed downward. This year, lipstick sales jumped 44 percent in the first quarter of 2022. The S&P 500 took a nose dive of more than 20 percent from its January high. To top it all off, the Federal Reserve recently hiked interest rates, which typically triggers a downturn in the economy.
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