Gen Z is looking for little luxuries. But those splurges look a little different compared to previous generations.
For years, retail leaders and economists have talked about the “lipstick index,” which is the idea that consumers forgo large purchases in favor of small luxuries like lipstick during economic downturns. The phenomenon is generally attributed to Leonard Lauder, one of the billionaire heirs to the Estée Lauder cosmetics fortune.
Gen Z has its own version of the lipstick index, according to a new PwC report that analyzed nearly a million customer transactions, including credit card and debit card transactions. Young consumers are treating themselves with items like matcha and fancy kicks, more so than lipstick, the report said.
“Micro luxuries like a pricey matcha, a resale sneaker drop, or cosmetics that double as skincare can telegraph cultural relevance without breaking the bank,” the report reads.
Lipstick, as the theory goes, is a luxury that could cost as little as a few dollars, but has an outsize effect on how the purchaser feels about themselves. Gen Z, however, is looking for “affordable affluence,” PwC wrote. That includes products that make them feel good, but also represent good value and an opportunity to improve themselves, Ali Furman, a partner at PwC, told Business Insider.
“For this generation in particular, self-improvement outcomes are very high on their interests list,” Furman said.
Take Matcha, for example. In the last few years, the drink has become more popular in the US and other markets outside Japan, thanks to its rise on TikTok. Some users also point to the beverage’s high levels of antioxidants and claim it can help reduce stress levels, among other health benefits.
“Years ago, it was in the tea aisle on a shelf,” Furman said. “Now, it has evolved into a calm energy ritual, and that is much more appealing to a Gen Z consumer.”
Gen Z’s holiday spending plans reveal the pressure they’re under this year. PwC’s holiday forecast shows that the generation plans to cut holiday spending by 23% this year. Millennials, by comparison, plan to reduce spending by 1%, while shoppers who identify as Gen X and baby boomers plan to increase holiday spending modestly.
PwC surveyed 4,000 consumers — 1,000 from each generation highlighted — between June and July.
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Gen Z’s tight spending relative to other generations might not be temporary, though. PwC’s report says that Gen Z’s habits represent “a generational shift in how value is defined and where money feels worth spending.”
Many Gen Z shoppers wait for products to go on sale before they buy them, for instance, and many don’t mind turning to dupes or private-label versions of name-brand products to save money, according to the survey.
While many Gen Zers are navigating a challenging entry-level job market and paying off student debt, they are also reaching critical life milestones, such as getting married and having children — both of which can be expensive endeavors, Furman said.
All that financial pressure means that Gen Z’s hunt for little luxuries and good deals might be more of a long-term trend than the lipstick index traditionally implies.
“It’s that coming-of-age issue combined with the economic climate,” Furman said.
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