Why some consumers lean on smaller luxuries during hard times

A softer labor market and a K-shaped economy mean that, despite the stock market's thriving performance, many consumers are starting the new year cautious and price-sensitive. But economic stress can have an unexpected effect on consumer behavior, causing an increase in purchases of small luxuries; this is called “the lipstick effect.”

Accessories, like shoe charms and statement necklaces, give consumers a sense of rebellion against a bleak economic backdrop, according to Jessica Ramírez, an analyst with The Consumer Collective.

“If you think of running outfits, you have your vest, you have socks, and it could be colored, or it'll be something that's going to make your feet a bit drier as you're running,” she said.

These are often cheaper purchases that add personalization — and retailers can cash in.

“At a time where you know the consumer is being so laser-focused, and we are seeing less items in the basket, this is going to be key in terms of price and how else you can have the consumer buy more than just one item,” said Ramírez.

In an economy that favors higher earners, for low-income consumers, “buying a small luxury can make you feel a little bit better about an economy that you feel increasingly left out of,” said Sofia Baig, an economist at Morning Consult.

These indulgent purchases also add novelty, per Uma Karmarkar with UC San Diego.

“In addition to treating yourself in the moment, it's also reviving things. And that's where accessories are fantastic, right?” she said. “You take an outfit that might have been boring, and you add a cool necklace, and then it feels like the whole outfit is new.”

And it’s not just apparel — everyday luxuries can include gum at the grocery checkout or a fancy chocolate.