How the K-Shaped Economy Is Redefining the Lipstick Effect

A K-shaped economy is a tale of two consumers: the highest earners prop up all discretionary spending, and the lower earners pull back. The US returned to this bifurcated model in 2025, according to the Bank of America Institute. That is, in all categories except for one: beauty.

“It’s a very different story, with the lower household incomes actually spending at almost exactly the same rate as everyone else,” said Larissa Jensen, senior vice president and beauty industry advisor at market research firm Circana. Per Circana data, premium and mass beauty are two of the five fastest growing industries in US retail. “Basically, all income cohorts are contributing an equal amount to that growth,” Jensen added.

Beauty’s reputation as a resilient category has been shored up over decades, or longer. In 2001, Leonard Lauder coined the “Lipstick Index,” a theory describing the uptick in sales of little luxuries during periods of downturn, as consumers seek a mood boost. But the last two years have tested its soundness, with key conglomerates such as Estée Lauder and Shiseido reported softening sales in mid-2025.

It’s a challenge that has been faced before: During the 2008 recession, Victoria’s Secret streamlined its operations by doubling down on fragrance, and more recently, even incumbent brands have felt the pressure to find new growth. MAC Cosmetics announced that from early 2026, its products would be available within Sephora for the first time — an announcement that beauty fans labelled a “recession indicator” across social media.

Though the global economy has not entered a recession, economic pressures are putting intense pressure on lower-income households. Resultant patterns are emerging, such as trading down behaviour, the resilience of dupe culture and the re-emergence of K-beauty and the DIY channel. While price is a key factor, value plays out in other ways, with demand for entry-level “mini” size formats, scientific backing and constant innovation becoming increasingly de rigueur.

Failure to understand how economic pressures have altered consumer behaviour — making them pickier, less brand-loyal and laser-focused on value — leaves individual players at risk.

The Great Trade Down

“As consumers make choices to cut back, we do see a lot of trade-down behaviours,” said Anna Mayo, vice president of consumer intelligence agency NielsenIQ’s beauty vertical.

Trade-down behaviour has become common for beauty shoppers. This is particularly within the skincare category, where innovation at lower price points coupled with consumers’ increased knowledge of formulas and ingredients means that switching to affordable brands feels less like a compromise.

“There’s this trend of consumers becoming really savvy, and knowing it’s not a black box,” said Manola Soler, managing director at consultancy firm Alvarez & Marsal. Brands that have convinced consumers their lower price point does not equate to lower efficacy have thrived, such as clinically backed The Ordinary and Byoma, along with ingredient-forward hair-care offerings such as L’Oréal’s Elvive and Pantene’s Pro-V.

K-beauty also has an edge. Korean skincare products, rooted in scientific research, are generally priced at mass-market range — popular products like Beauty of Joseon’s eye cream, Cosrx’s Snail Mucin Essence and Medicube’s Collagen Jelly Cream each sit below $20. Such a combination, in conjunction with their novelty to many shoppers, means that people “don’t feel like they’re trading down with K-beauty,” said Mayo.

Dupe culture also continues to thrive, particularly within the cosmetics category. “It’s less sticky as a category. Wherever people end up buying beauty, they become exposed to all these other brands and they’re willing to try them. It’s become a lot less taboo,” said Soler.

“Consumers want to indulge, but not everyone can indulge at the same rate,” said Jensen. “With dupes there is the ability to save, but still feel like you’re indulging.”

Despite these individual successes, brand loyalty on a whole is down. Instead, value-conscious consumers are becoming more retailer-loyal. “Maybe I’m going to go buy fewer from the brands that I like, but I’m going to stay with the retailers that I trust for their curation, because hopefully I’m getting loyalty points as well, which also brings that element of value,” said Soler.

Brands in a retailer-loyal landscape must shore up their relationships with key stockists like Sephora and Ulta — or risk falling behind.

The New Hybrid Model

Increasing salon prices have created their own so-called indicators such as “recession hair,” the spike in popularity of lower-maintenance hair colours and styles as customers look to stretch out their salon appointments.

“We’d always believed that there was a strong bifurcation of people either visiting a salon or doing their own hair at home,” said Denise Paulonis, president and CEO at Sally Beauty. “When we actually surveyed customers that colour their hair, only 20 percent were salon-exclusive customers, and only 40 percent coloured their hair at home exclusively. The rest rely on a combination of both.”

To win this influx of at-homers, Sally’s is equipping them with both DIY products and the expertise to use them. In 2025, the retailer launched a “licensed colourist on demand” service where users can talk to a professional through all of the steps of dying their own hair at home. The service draws over 5,000 users each week, half of whom are new to the retailer. “They’re finding us because they want that source of confidence and expertise, and then we watch them be really sticky,” said Paulonis, adding these customers have about twice the lifetime value of an average customer.

Soaring manicure prices means the DIY nail category is also thriving. “The price and time it takes to go to a nail salon is just kind of out of reach for many people,” said Mayo. “Nail products have just gotten a lot better to do at home.” Press-on nails are surging in popularity, particularly among Gen Alpha. Olive & June, beloved for its press-ons, has also recently released an at-home builder gel as it hopes to poach BIAB and gel-nail shoppers along with those drawn to acrylics.

The at-home med spa experience is also having a moment, as beauty technology like LED devices, microcurrent tools and radio-frequency wands become increasingly widespread. In 2025, The Beauty Tech Group, owner of beauty gadget brands Currentbody Skin, Ziip Beauty and Tria Laser, estimated the global value of the beauty device market at £9–12 billion ($12–16 billion).

Entry-level models, like Ziip Beauty’s Dot or the Nuface wand, and topicals such as face masks and exfoliators look less like splurges and more like investments when they can help space out med spa visits.

“I think that’s the beauty of the beauty industry,” said Jensen. “There’s a lot of levers to pull.”

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