The Key to Beating a Recession Is … Lingerie?

Here’s why Victoria's Secret seems likely to outperform during economic downturns

• Victoria's Secret outperformed almost all other clothing retailers during the Great Recession.
• That’s because the “Lipstick Effect” brings shoppers into the company’s lingerie shops even during economic downturns.
• Its strong brand identity and consumer loyalty also help prevent substitution.

With fear of recession casting a shadow over wildly fluctuating markets, investors are seeking safety wherever they can find it. While hedges like metals and inverse exchange-traded funds (ETFs) are well known and highly effective, it can also be fun to try a less-conventional recessionary cushion. One such company is Victoria’s Secret (VSCO), which tends to hold its own even in times of recession because of something called the “lipstick effect.” 

During economic downturns, consumers cut back on big-ticket luxury purchases, such as vacations, cars or designer handbags. They still crave indulgence but at a smaller, more affordable scale. As a result, spending shifts toward small luxuries that offer a psychological reward without the financial guilt—like lipstick, perfume, skincare products and, most relevant to this article, lingerie. When people stop buying Gucci bags, they start buying lace bralettes.

A company’s historical resilience

Now, let me be clear: This does not mean Victoria’s Secret sees an increase in revenue in times of recession. It sees a smaller decrease than the rest of the market and tends to recover more quickly. 

During the Great Recession of 2008-2009, Victoria’s Secret saw same-store sales (at locations open for one year or longer) fall by 7%. While th t sound bearish in a vacuum, it’s leaps and bounds better than the rest of the market. 

During the same recession, Abercrombie & Fitch (ANF) suffered a staggering 30% decrease in same-store sales. Gap (GAP) same-store sales fell by 14%. Ralph Lauren (RL) saw a 13.5% decrease and American Eagle (AEO) experienced a 12% decline. 

In the context of the broader economy and compared with other clothing retailers, it becomes clear the lipstick effect kept Victoria’s Secret afloat in a fashion (pun intended) most of its competitors did not experience. 

The chain’s surface area

Another advantage for Victoria’s Secret is its wide surface area helps it to take advantage of the lipstick effect. Its wide range of affordable products, from clothing to lingerie to beauty supplies, make it a one-stop shop for lipstick effect merchandise. Plus, the chain has diversified its product offerings since the Great Recession of more than 15 years ago. 

Besides, Victoria’s Secret also has strong brand identity and customer loyalty, which have helped sustain sales during economic downturns. It is to the clothing sector what Tesla (TSLA) is to automobiles: A luxury brand at a price most average consumers can afford. 

A push is a win

Should we experience a recession in the coming quarters, nearly the entire market would move down, and identifying strategic spots where companies may be able to break even, or come close to it, will become a valuable skill. 

These companies, Victoria’s Secret among them, appear unlikely to move down as far as the rest of the market and will also have stronger financial legs to stand on as the market recovers.

Enduring a recession can feel like sitting at a blackjack table where breaking even is a win. And I could see Victoria’s Secret pulling off a push, despite its downturn since December of last year. 

Gus Downing is host of the tastylive Network show Risk and Reward. @GainsByGus
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