👉 Background: Rhode, the luxury beauty brand was founded 2022 by Hailey Bieber, aka wife of Justin Bieber, daughter of Steven Baldwin and bestie to Kendall Jenner. Over the past two years, Hailey Bieber has leveraged her reputation and 66 million social media followers to create beauty trends like “clean girl aesthetic” and “donut glazed skin”. Next minute: Rhode's revenue has gone from $10 million USD in its first year to $100 million USD two years later.

👉 What happened: Now American cosmetics brand E.l.f (which stands for eyes, lips, face), the brand founded in 2004 and known for selling affordable quality cosmetics, is dropping $1 billion USD to buy Rhode as a way into the luxury beauty market.

👉 What else: You'd think people might skip the $18 USD peptide lip treatments when they’re struggling to pay for groceries. But the hype around Rhode and the growth in their revenue says otherwise. And that’s all thanks to the lipstick effect.

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What's the key learning?

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💡The lipstick effect says that during economic hardship, people still treat themselves, just in smaller ways. Some people even say it’s an indication that a recession is on the way.

💡When the economy seems like it’s falling apart, people can’t afford big purchases so they treat themselves to the little luxuries instead, like an $18 lip "treatment". This theory got popular in 2001 when sales of lipsticks grew significantly in the US during the economic recession that followed the 9/11 attacks.

💡In fact, Estée Lauder, a leading company in the premium beauty space, reported an 11% increase in lipstick sales during this time. And this happened again in 2008 during the global financial crisis. So while it seemed counterintuitive to enter the premium beauty market in 2022 during peak inflation, Rhode actually launched its premium brand at just the right time.