Leonard Lauder, chairman of the board of Estee Lauder, coined the term the lipstick index to explain the increased sales of cosmetics during the early 2000’s recession. Lauder’s claim was that lipstick sales were inversely correlated to economic health and could be used as an economic indicator.

His observation was that during times of economic distress, women shift from buying more expensive items, like shoes or a dress, to lipstick and other cheaper cosmetics.

The 2009 recession in the US disproved this, with sales falling during the recession and growing during periods of economic growth. Commentators later pointed to the rise of ‘celebrity’ as the driving force behind the heightened focus in 2001 on cosmetics.

However, it has been suggested that nail polish could be the new lipstick with sales booming in the midst of the recent economic recession in the US, up 14.3% and the only cosmetic product to post a double-digit increase.

While we don’t have the data on nail polish sales during the most recent period of market turmoil here in Australia, let’s have a look at retail growth rate trends in general.

CoreData’s analysis on growth in Australia’s retail trade sector shows that since the sharp decline experienced during the GFC and a subsequent bounce in January 2009, the Q3 growth rate is now back to levels not seen since the last quarter of 2008.

The graph below illustrates the growth rate from the September 2003 quarter through to the April 2011 quarter and provides some evidence as to the rocky road of retail over the past eight years.

There is a clear downward trend since early 2004, with considerable dips in June 2005, December 2008 and April 2011.

Retail sales have continued to fall with large retailers, JB Hi-Fi and Myers, reporting falls in profit mid 2010/11 financial year and David Jones announcing a 10.3% decline in sales in the fourth quarter of 2011.

David Jones attributed these sales fall to turmoil in the Australian financial marketplace and a continuing decline in consumer confidence.

Unfortunately, the bad news continued for retailers in 2011, with CoreData’s latest investor sentiment index for Q3 plummeting 34% since Q2 on the back of concerns over the US and European debt crises.

The question remains to what extent this decline in retail growth is due to Australian consumers’ spending less versus the recent increase in online offshore shopping, which has been attributed to Australia’s strong dollar, the ease of shopping on mobile devices and the prevalence of these devices, increased awareness of shopping online and improvements in the online shopping experience.