Max Chaffkin (2:08)

Well, I do also think we're sort of in this weird moment of maybe political reckoning. You had the Democrats obviously perform well in the elections. We talked about that last week. You have this shutdown ending. You know, the Trump administration kind of scrambling essentially to come up with ideas to change the conversation, to sort of try to embrace that message that Democrats had been pushing around affordability that Trump had kind of had for a time, but maybe lost. You know, that's coming in our, in the conversation that's coming up. But before we get there, I want to talk about beauty and specifically the lipstick effect. You have a new piece in BusinessWeek Business Week the beauty issue is coming out. It's on the web now as you're listening to this. And you wrote about this kind of interesting phenomenon that happens with sort of, I don't know, luxury items or. Why don't you explain it's makeup specifically?

Stacey Vanek Smith (2:58)

It's super interesting. So, I mean, one of the issues that happened during the shutdown was we just did not get data. And this is a moment where the economy feels a little bit like maybe it's at a turning point or like a really key point, especially the job market. So people are looking at anything. One of the kind of more interesting recession indicators that is out there is called the lipstick effect. It was identified by Leonard Lauder, who was the CEO of Estee Lauder at the time. And he. He noticed that during economic downturns, makeup sales went up.

Max Chaffkin (3:29)

Hmm.

Stacey Vanek Smith (3:30)

It's been dubbed the lipstick effect. But it actually does seem to hold true. And there's been all this speculation as to why. So I looked into it. There were some sort of annoyingly disturbing theories. One of them was that when economic times get tight, women will gussy up to, like, land a wealthy man or maybe to, like, make it easier to find a job.

Max Chaffkin (3:51)

Do not repeat this insight.

Stacey Vanek Smith (3:53)

Do not repeat this insight. Indeed. There actually have been some studies on it. I tracked down this economist. Her name is Yasmeen Dildar. She's a professor of economics at California State University, San Bernardino. And she looked into the lipstick effect and actually compared makeup spending and broke it down by people who were employed versus unemployed and people who are married versus unmarried. And here's what she found. Lipstick effect is completely innocent, in my opinion. It's definitely not driven by those sexist assumptions about women, like, appealing to high earning males. Like, it has nothing to do with mating or beauty or whatever. It's just simple treat. So what she found was it's the.

Max Chaffkin (4:33)

Same reason beer sales go up during a recession. Basically, it's just like, you're bummed out. You got to find some, like, small way to feel better.

Stacey Vanek Smith (4:41)

Yes, well, what happens is, like, people cut back, and this is true for men, and women cut back on bigger purchases, and then they will buy small, smaller treats like beer. For women, it tends to be makeup. So there's like a $40 sweet spot. According to, like, you know, Deloitte, it's a little higher for men, but there's like a $40 sweet spot of little luxuries that people turn to, and they're doing that now, which is kind of an interesting omen.

Max Chaffkin (5:07)

Yikes.

Stacey Vanek Smith (5:08)

I know it's happening now, but it could be happening for a number of reasons. It doesn't necessarily mean a recession is coming, but it is one of those little indicators that people watch. So I looked at a bunch of data. It seems like the lipstick effect is happening. But we have a Sephora very close to our office, which I have possibly visited a time or two. And so I found some people coming in and out of that Sephora, and I talked to them to see if they were, in fact, maybe spending all the money.

Max Chaffkin (5:33)

You're doing your own research on makeup?

Stacey Vanek Smith (5:35)

Yes, research on the ground. Here's what they said. How much would you see you spend on makeup a month?

Alison Schrager (5:39)

At least 50 bucks. I just buy what I need.

Sephora Customer 1 (5:42)

Our paycheck might as well go directly to Sephora.

Amanda Mull (5:45)

Yeah.

Sephora Customer 1 (5:45)

As soon as that paycheck hits, we're here trying out, like, the latest lip gloss lipstick.

Stacey Vanek Smith (5:49)

How much would you say you spend, like, a month in Sephora?

Max Chaffkin (5:53)

A thousand dollars.

Stacey Vanek Smith (5:55)

I'm not even exaggerating. We last time went here, like, spent, like, $800.

Alison Schrager (6:00)

Yeah.

Stacey Vanek Smith (6:00)

What are some of your favorite products?

Sephora Customer 1 (6:02)

Nars concealer could, like, I could be dead, and it will wake me up from, like. Like, you could make a zombie look good.

Amanda Mull (6:08)

I've been Hailey Bieber's new line, Rhode. Their lip products are really nice.

Sephora Customer 1 (6:14)

Sometimes you just buy it because it looks cute in your makeup bag.

Stacey Vanek Smith (6:17)

What is it about beauty products that, like, bring you back to the store.

Sephora Customer 1 (6:20)

The way they make you feel? Like, I will fall in love with the perfume, and I will wear it and I'll spray 100 times, like, killing everyone in the office. But I don't care because I'm like, It makes me feel nice. And the high that I get from makeup or perfumes is not the same. The same. If I bought, like, a nice little blazer, it's a different joy that you get from getting a new blush, getting a new lipstick, getting a new perfume.

Max Chaffkin (6:43)

I don't know.

Stacey Vanek Smith (6:44)

Someone telling you, oh, that smells so good.

Alison Schrager (6:47)

You're like, thank you.

Sephora Customer 1 (6:48)

No one's walking around and saying, like, oh, that's a nice blazer.

Max Chaffkin (6:51)

Oh, my God, $800 a month at Sephora.

Stacey Vanek Smith (6:56)

Yeah.

Max Chaffkin (6:57)

Wow.

Stacey Vanek Smith (6:57)

It can happen faster than you think. I've never quite gone into the 800, but, yeah, people were spending. And everybody said they were spending less on clothes and that they were spending a little more on makeup.

Max Chaffkin (7:08)

So I was trying to think about, okay, like, what is the male equivalent of this? And, like, I said beer before, but it might be sports betting now.

Stacey Vanek Smith (7:15)

Oh, that's true.

Max Chaffkin (7:16)

You have these stories about people like my spouse is lost, like $300,000 betting on sports or whatever. I feel like we're kind of getting into that territory here with some of these.

Stacey Vanek Smith (7:27)

Yes, well, I actually, I looked into that a little bit. For men, it seems to be video gaming is a big one and electronics. So those are their little. Like probably next week maybe we can go stock people outside of Best Buy. How much money they're dropping every night.

Max Chaffkin (7:43)

Is as having people tell. Tell you that you smell good. Wow.

Amanda Mull (7:46)

I know.

Stacey Vanek Smith (7:47)

It is sort of true that like spending on makeup, it's a little different. It's like there's something of like a little dream in there, you know?

Max Chaffkin (7:54)

Stacey, this conversation makes me want to hear from the people listening to this show.

Amanda Mull (7:59)

Me too.

Max Chaffkin (8:00)

Because first of all, I want to hear how much money they're spending at Sephora and the like. Is it $800, $80? But also, like, when you think about this, the economy's not great, but I'm still, I gotta treat myself somehow. What are you treating yourself to? Is it, is it kind of sad video gaming? Is it smelling awful but it makes you feel nice? What is it? Like, let us know, send us an email. Everybody's@Bloomberg.net and tell us, like, first of all what you're buying and how much money it costs if you don't want us to use your name and if.

Stacey Vanek Smith (8:36)

You'Re spending more or less than you normally do. So, Max, we've been talking about the government shutdown and kind of the effects that it's had across the economy, including one of the questions that it brings up, which is like, how we're going to pay for things going forward.

Max Chaffkin (8:57)

Yeah. And just like there were all these questions swirling about just how bad the economy was, how bad consumers were feeling affordability. Now it feels like government shutdown's over. We can go back to thinking about those questions.

Stacey Vanek Smith (9:10)

Yes. But you know our president is a real estate person, Right. And he made this suggestion that has caused quite a splash this week, which was to introduce a 50 year mortgage.

Max Chaffkin (9:22)

Love it. It's like you have a mortgage.

Stacey Vanek Smith (9:24)

I don't have a mortgage, just a.

Max Chaffkin (9:26)

Normal 31, not a cool new 50 year one.

Stacey Vanek Smith (9:30)

And this sparked a big debate which actually I didn't quite understand at first. Like 30 years, 50 years, it didn't seem to make a difference.

Max Chaffkin (9:37)

So basically everyone thinks this is a bad idea. The left thinks this is a really bad idea. A bunch of people on the right think it's a bad idea. But there's one person who's here with us right now who actually made a, I thought a pretty persuasive argument that it could be an okay idea.

Stacey Vanek Smith (9:52)

Yes. We're very lucky to be joined by economist Alison Schrager, a senior fellow at the Manhattan Institute, and an opinion column here at Bloomberg. Welcome, Allison.

Alison Schrager (10:00)

Thanks for having me.

Stacey Vanek Smith (10:01)

Okay, before we get into like hot takes, like, what is the difference between a 30 year mortgage and a 50 year mortgage? And like, how, what is this supposed to fix? What's the idea?

Alison Schrager (10:12)

So I mean, in financial terms, it's not a huge difference. And in a lot of ways I feel like everyone freaking out about this idea has been very illuminating to me. You realize you're an economist who does like a, into bonds and how you think about things and how everyone else thinks about things is completely different. And that's been revealed to me this week because it has been this unifying left and right idea. And so a 50 year, the obvious difference is it's 20 years longer, which means your interest rate payments in print, paying the principal is spread out longer. So you pay less month to month. And of course you're also paying off the principal more slowly. So I'm noticing a lot of people are very upset about this idea because there's this idea that you, I have a 30 year mortgage too, that you buy a home and it's yours one day you pay it off and then it's all yours. And a 50 year would mean 20 years longer and most people will not be alive then. Like if you buy a home when you're 40 and you pay it off.

Stacey Vanek Smith (11:08)

Which is the average age of a home purchaser now, I believe.

Alison Schrager (11:11)

Exactly. And that's part of the problem. And you pay it off when you're 70, then you don't have to pay for your house in retirement. But now if it's 50, you're like 90 and you know, maybe, you know, dead or, you know, you had to.

Max Chaffkin (11:26)

Pay your mortgage throughout retirement or you've downsized maybe.

Alison Schrager (11:29)

Well, that's actually the thing that I realized how I think about it differently than everyone else because most people don't do this. Most people don't buy their first home in their 40s and then pay it off when they're 70 and continue to live there. Things happen in life between 40 and 70, like you might move, you might refinance, you might just decide to pay your mortgage off early and most people end up doing that. Most people aren't paying it off at the end anyway. So it really, it's, I mean, I guess you, you could argue that, you know, you get more, less money back when you sell it, you know, with a 30 year than a 50 year. But there's also the time value of money, which Peter Coy just pointed out, which is if you have a lower mortgage payment, you could use those savings. One, it makes you more likely to afford the house. But you could also use those savings to invest in other things, maybe get a higher return, maybe diversify your assets a bit from this house. That's most of your assets.

Max Chaffkin (12:16)

Can we just back up and explain why Trump is floating this like he's floating this? Because home prices have been going up like crazy and there is a real affordability challenge with homeownership. And it's part of it has to do with the fact that interest rates were low for a very long time. So a lot of people who are, who have these really great mortgages paying like two and a half percent or something over 30 years. Now, if you look to buy a house, you're talking about 6%, 7%, something like that. And as a result, no one is selling their houses. And that is driving the price of real estate up, which means that the amount you can afford to buy is much less because your monthly payment has much higher. If it's a 50 year mortgage, your monthly payment goes down. Did I get all that right?

Alison Schrager (13:01)

Yeah, I think that's the justification is we need to do something because no one's moving and that's adding to the supply issue.

Stacey Vanek Smith (13:08)

So why are people so against this idea? It seems, on its face, I will admit, like a fine idea.

Amanda Mull (13:14)

I don't know.

Alison Schrager (13:15)

Yeah, that's what I would have thought. But again, it's this romantic notion. I don't know, romance is the right word, ideal that you buy a house, you pay it off and then it's yours. And this effectively, I think I'm noticing on people's commentaries this makes this impossible.

Stacey Vanek Smith (13:29)

I did hear it described, I really liked this by Ernie Tedeschi on Twitter as shrinkflation, which I did kind of like. I mean, I guess the idea is you're now building equity much more slowly and the benefits of homeownership, which are very tied in with ideas of the American dream and also kind of moving up the ladder financially, I think a lot of it is like building equity and things like that, that's just going to happen much more slowly. I guess that's the big issue.

Max Chaffkin (13:56)

I mean, for me, the worst thing about this potentially would be that Basically it just causes home prices to go up more because like suddenly you could afford even more. And maybe, I don't know, Alison, I don't know what you think about this. Maybe if they actually created this policy, it would force the federal government to essentially like backstop these loans because no one in their right mind is going to give a 50 year fixed mortgage. So like you're just creating yet another federal subsidy that benefits like one part of the population, people who own homes, and you're creating an even worse gap between renting and homeowning or something like that.

Alison Schrager (14:34)

But we already entered that world with a 30 year mortgage.

Max Chaffkin (14:36)

You're like, it's too late. We got to just like, if, if.

Alison Schrager (14:40)

They put me in charge, I would do a lot of radical to the housing market.

Stacey Vanek Smith (14:43)

But what would you do to the housing market?

Alison Schrager (14:45)

Well, I mean I, you know, I'd build more, I'd probably have more portable mortgages. I'm not sure a 30 year fixed rate should exist, but they do. I have one. I love it. But like, I'm not. It's a financial abomination that also requires a ton of government intervention for that to even exist. It's insane that a bank would lend a consumer a 30 year fixed rate loan at such a low rate. That should never happen. And it takes all of this government intervention for that to happen.

Max Chaffkin (15:12)

Given the, like, the politics, given that you had a lot of kind of sort of like people to Trump's right kind of hating this because of usury, you had people on the left talking about it as a handout to banks that just like further exacerbates inequality. Do you see any path for any of this stuff to actually happen?

Alison Schrager (15:29)

I think one thing we're learning is housing affordability is becoming the most salient political topic. But I think with real estate it's particularly threat, say thorny because home prices are just too high. People are just being shut out because prices are high.

Stacey Vanek Smith (15:43)

And.

Alison Schrager (15:44)

But the problem is, is we've sold real estate as this American dream that both will be your home where you invest in, but will also be this amazing asset that pays off.

Stacey Vanek Smith (15:52)

Yeah.

Alison Schrager (15:53)

And the problem is if we actually built enough housing to really meet demands, housing prices would also fall. A lot of Americans own a home and it's their primary asset in their portfolio. And this is one reason why people are NIMBYs is they have a financial interest. And as a homeowner, I get this, you know, I don't want to see the value of my home fall anyway.

Stacey Vanek Smith (16:12)

It is, you don't want some huge apartment building coming up next to you with a million.

Max Chaffkin (16:17)

It's not just that you don't want to see it. It's that many people can't afford to see the value of their home.

Alison Schrager (16:21)

A lot of people, this is their main nesting, this is what they're going to retire on. So when we talk a good game about, wow, you know, it would be really great to build more and have home prices be more affordable, you know, there's winners and losers in that. And there's a reason why it's not just so easy is, you know, you will be sort of honestly destroying, but like really sort of decimating the portfolios of pretty much every homeowner in America, which is pretty much a lot. Almost all the middle and upper middle class.

Stacey Vanek Smith (16:48)

Well, I was just, I mean, the affordability issue is really interesting. I was just looking at this chart of the median age of first time home buyers and five years ago it was 33 and now it's 40. I mean, that is a huge jump.

Alison Schrager (17:02)

Yeah. And a lot of it is the sort of messed up housing market that we have where just prices. Because you know, on the one hand people are like, it's never been harder to buy a house. And that is true. Although mortgage rates were like 13, 17% in the 80s.

Stacey Vanek Smith (17:15)

Yeah. My mom said she was like shopping around for mortgages when she and my dad were buying their first house in Boise and she got like an 8% mortgage and she said she was thrilled at. Which now would be outrageous.

Alison Schrager (17:27)

Yes, of course, house prices were a lot cheaper then too.

Stacey Vanek Smith (17:30)

Yes, that's also true.

Max Chaffkin (17:32)

Wait, but you were about to say people were able to afford homes in the 80s because. Just because they were cheaper. Is that what you're saying?

Stacey Vanek Smith (17:38)

They were cheaper?

Alison Schrager (17:39)

Also there was less of an economic need to live in high density areas. So people, you know, Boise has gotten a lot more expensive. It's become a much more desirable city than it was in the 80s.

Stacey Vanek Smith (17:52)

Also that time when interest rates were that high, like that caused a huge recession. Like it wasn't good for the economy. Like, I think it probably did slow.

Alison Schrager (17:59)

Although it did break inflation.

Stacey Vanek Smith (18:01)

It did break.

Max Chaffkin (18:02)

What happened to all the wonderful predictions we heard from like the tech companies during the pandemic about how Zoom, etc. Was going to remake real estate and like you were going to have. It was going to suddenly be like way easier to. None of that happened. Huh. It's just people, even in these like far flung communities that people move from San Francisco to home prices are high. Like that whole prediction just turned out.

Stacey Vanek Smith (18:25)

To be, well, I think, I mean, Alison would know better than me. But my take on that is that the job market changed and companies were like, you have to come back to the office. So suddenly the real estate market became concentrated on cities again. But I don't know.

Alison Schrager (18:40)

Yeah, and you know, you know, young ambitious people want to be in cities. And that's still true. I mean, I think we saw even in New York, before people had to come back to the office, you saw this influx of young people, you know, who want to make their careers here. I mean, it's not only fun for them, but you also do important networking and skill building and development. So I can see this is part of the problem with affordability is if you're in your 20s and you're not making a lot of money yet, you still feel a lot of pressure, even sort of for your career to be in a very expensive place. But very expensive places are pricing people out.

Stacey Vanek Smith (19:14)

Okay, so, Alison, final take 50 year mortgage. Thumbs up, thumbs down.

Alison Schrager (19:19)

You know, it's a weak thumbs up. Like, okay, I'm sort of, I don't think it's terrible, but like, I don't see as being particularly worse or better than a 30 year.

Stacey Vanek Smith (19:29)

This isn't going to solve the housing.

Alison Schrager (19:31)

It will make it marginally better. I mean, it will bring down mortgage rates. And I would, I think I said in my column, I would prefer a 50 year mortgage to say, financial repression where we just go in and force interest rates to down. That would be worse. Or relaxing lending standards. That would also be worse. So of all the things they could potentially do short of these portable mortgages, this would be better.

Stacey Vanek Smith (19:52)

50 year mortgage, not the worst solution to the housing crisis.

Alison Schrager (19:55)

Exactly.

Amanda Mull (19:57)

Okay.

Max Chaffkin (19:57)

All right.

Stacey Vanek Smith (19:58)

Thanks, Allison.

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Max Chaffkin (22:35)

Stacey, I don't think you're gonna be surprised to hear this, but I am not a big spender when it comes to items of beauty.

Stacey Vanek Smith (22:44)

You know I am.

Max Chaffkin (22:46)

Well, this come up before.

Stacey Vanek Smith (22:47)

Do we count hair products though there?

Max Chaffkin (22:49)

I do. You're thank you. Thank you for seeing me.

Stacey Vanek Smith (22:52)

Yeah, well, I know that you did not. You have refused to call the person who cut your hair your barber. Like your sty us.

Max Chaffkin (23:02)

Brian, if you're listening, love you, but see okay, so so maybe I'm wrong, but I nonetheless had not heard of ulta, the company that is on the COVID of this month's issue of Bloomberg Businessweek. It is one of the hot things both in retail and in beauty and Amanda Mul, who wrote that story, is with us now. Hey Amanda.

Amanda Mull (23:24)

Hey.

Stacey Vanek Smith (23:25)

So I had heard of Ulta because my parents live in in Eagle, Idaho and there's an Ulta in Meridian and it's a big deal there. But like it's much less of a deal in New York. New York's all about Sephora, but that was kind of what your piece was about. I was like really floored that Ulta is at the size of it. Will you just kind of like describe this company to us?

Amanda Mull (23:48)

Yeah, absolutely. Ulta is a Fortune 500 public company. They are a beauty retailer. They have at most recent count 1500 stor in the US they've been around since 1990. They opened their first three stores in the North Chicago suburbs. And it was founded by two executives from Osco Drug, which is a midwestern chain pharmacy. And their fundamental insight was that they have a lot of customers at the pharmacy who buy a lot of beauty products there, but then also buy a lot of high end beauty products. So what if we made a beauty retailer that carried low end, middle range and high end stuff and people could, you know, come and get it all at the same place in a convenient shopping center location. And the overall sort of value proposition of Ulta remains that it's just grown sort of massively and you can get everything from like a, you know, an $8 Maybelline eyebrow pencil to, you know, Chanel and Prada perfume. They carry 600 brands. They carry over 30,000 SKUS products, most of them in store. They are like the best Buy or Home Depot of the beauty industry.

Max Chaffkin (24:57)

First of all, $11 billion a year in revenue. This is a big and that' a.

Amanda Mull (25:01)

Huge growth trajectory over even recent years. In 2019 they brought in about $6 billion of revenue.

Max Chaffkin (25:07)

So what's crazy to me is I feel like, you know, I've read a lot of stories over the last five, 10 years that are basically about how this model is done, that big box stores are not good anymore. Businessweek has done stories about Best Buy, you know, basically going down the drain, Bed, Bath and Beyond doing not great like I thought. At least I thought, I thought that this model was dead. With the Internet, you would never go to like a strip mall and spend a couple hundred bucks, you know, on products. You would, you would do that on the Internet.

Amanda Mull (25:41)

Yeah, in almost every other sector, this model is dead. Beauty is particularly unique in this way in that it has, in the US it has two sort of thriving large scale multi brand retailers. It has both Ulta and Sephora. They sort of take different views of the beauty industry and of beauty retail. Sephora is very like Malburg. It is smaller in footprint. They only carry high end products.

Stacey Vanek Smith (26:03)

It's very cool too. Like the vibe of a Sephora is it's kind of cool. And there's loud music and the people are chic and.

Amanda Mull (26:10)

Yeah, yeah. And it's very slick. Like, it's sort of like a candy store. Whereas Ulta is more of a utilitarian, like a drugstore. Yeah. I can't tell you how many times the executives that I spoke with for this story said that their priority is to be welcoming and inclusive and to have a little bit of something for everybody and to serve everybody's needs and whatever those needs are. And the, you know, full spectrum in the beauty industry in particular is like a very segmented, very sort of like branding driven industry. Because a lot of these products aren't like that different. There's like, only so many, you know, chemical cosmetic, you know, advances every year.

Stacey Vanek Smith (26:47)

Stick foundation.

Amanda Mull (26:49)

Yeah. So you get a lot of, like, similar products across brands, across price points. And in order to compel somebody to buy a $42 Chanel lip gloss, when a $10L lip gloss sort of does the same thing to your lips, you have to give them an environment, you have to give them a feeling, you have to give them, you know, sort of a sales pitch. And that traditionally doesn't work really well when all of that stuff is under the same roof. And you can, like, swipe them both on the back of your hand and see that they're, like, very similar. But Ulta, their theory was, like, actually, you can do that. It's fine. Like, consumers understand that, like, there might not be like a ton of difference in these two products, but they want the Chanel version because it has the cool packaging, because it feels cool to buy something from Chanel. And the existence of that lip gloss in the same place that they buy Cerave body wash for $9 is not like one does not damage the other. In fact, it's great that they're both together because you might come in for that lip gloss and then be like, oh, I need some shower gel. And they, they put themselves in these shopping centers that are sort of unglamorous. You know, I went to one in New Jersey that was next to a Petsmart and a Marshalls and, like, across the parking lot from a Walmart and places that people go, like, on the way to work on their lunch break, things like that.

Max Chaffkin (27:54)

I. I do wonder, to Stacy's point about Sephora, if part of what makes the company smart is that Sephora is too cool for people or too young or something. Maybe only because I'm a parent of a tween. Like, now I think of Sephora as, like, Basically a brand for 12 year olds as a store for 12 year olds. And I realize it isn't exclusively that, although maybe there's something more welcoming about a Home Depot like environment versus a place that's trying super hard.

Amanda Mull (28:22)

Yeah. Sephora, which is owned by lvmh, which is of course a huge French luxury conglomerate, takes itself a little bit more seriously. They tend to be in higher end malls or like very pricey, sort of like flag real estate in city shopping districts. They carry mostly more expensive products, a smaller assortment, the aisles are a little bit tighter. You know, you're going to get sort of bugged a little bit more by the people who work there. It is just like a different feeling.

Stacey Vanek Smith (28:48)

Well, I think too, like to Max's point about the big box stores, one of the differences in beauty is that that is a product you want to try. Yes. And also it's not only that you want to try it, but it's that there's something kind of nice about those being in those stores and trying products on. It feels maybe a little self carry or something like that.

Amanda Mull (29:09)

Yeah, I think that first beauty is an in person business. Ulta has a huge, you know, Internet presence. So does Sephora. But 80% of Ulta's purchases still like originate in stores. It's people walking in. It's not somebody ordering online and picking up in store. It is 80% is people walking in, buying something, walking. And that's because like you said, beauty is just like a very tactile, very like in person industry. Like you want to be able to see how the eyeshadow palette shimmers. You want to be able to see if this new color of foundation actually matches your skin. I think for a lot of people, beauty and beauty products feel like possibility you might be like one product away from like your new self, which is, you know, a marketing gambit that the beauty industry loves. But also like, it really does feel that way to a lot of people. People and which makes it, you know, if you're going into petsmart to get cat food or to buy or something like that, that's not that fun. But if there's an Ulta right next.

Stacey Vanek Smith (30:04)

To it, maybe you go over there.

Amanda Mull (30:05)

And see if they got a, you know, something new that you might like. See if they've got the new mascara that you read about or saw on TikTok or something like that.

Stacey Vanek Smith (30:13)

Yeah, I think the CEO of Revlon at one point said, we, we don't sell makeup, we sell hope. One of the things that came up in this beauty issue is, it's Business Week's beauty issue is the fact that makeup's actually doing really well at this moment, that a lot of other parts of the economy are not. Is that maybe part of why?

Amanda Mull (30:30)

Yeah, I think we're in like a sort of odd economic space right now. And we've been there before, we'll be there again. And throughout these times, the beauty industry tends to thrive. It's, you know, it's what is called the lipstick effect. So retailers like Ulta, I think really have an advantage during these periods because they are places where people go to like have a little bit of fun, to buy a little something that feels special, that feels like they're not going to have to like sacrifice other things in life to get it.

Max Chaffkin (30:56)

So I feel like that concept will not surprise people. The ultimate example of the lipstick effect, the pandemic, when all sorts of products like this, of course, not just beauty products, but like we had a whole, you know, YOLO buying and you know.

Stacey Vanek Smith (31:10)

Also, also we were all on zoom. So I feel like you saw your.

Amanda Mull (31:12)

Face on and a lot of people got on TikTok for the first time and started seeing. TikTok is huge for beauty.

Max Chaffkin (31:17)

Ulta's sales have nearly doubled since before the pandemic. If you look at, there's a chart with the growth, like it is crazy, like 20, 21, 22, 23, 24. It really grew quickly, but growth has kind of leveled off. And like it does seem like the industry while when you're reporting the story they told you, like, we're not seeing sales fall off, we're not seeing like economic uncertainty impact. Ulta. It does seem like the industry as a whole is kind of not as hot as it was, you know, during those, those go go pandemic years.

Amanda Mull (31:49)

Yeah, there was this burst of activity over the course of a few years. There was a lot of pent up demand from higher income consumers who had been sort of stuck at home, not traveling, not going out to dinner, not doing all these things that they might otherwise spend their money on working from home. And then they suddenly went back to being perceived by other people in like, you know, real life.

Stacey Vanek Smith (32:09)

It was a rough transition.

Amanda Mull (32:10)

Yeah. And you know, there's a lot of things that happened in those few years. Like a lot of people got botox for the first time. There was like a big surge in like med spa sales. There was a lot of inquiries to plastic surgeons. And the beauty industry in general just sort of really, really boomed across retailers, across brands, across countries. That growth has slowed down a little bit. Like obviously there's no more pent up demand, but it continues to grow. I think the growth estimates right now annually for the next five years are between three and a half to 5%. Before this year the estimate was like more like 7%, I think. So it's still growing, but it's not growing quite as much. Ulta is still growing though. They had been flat for a little while. But in January they, they brought in a new CEO, Keisha Steelman, who had been their chief operations officer previously and she for the past two quarters has beaten Wall street expectations. The company is expanding overseas. They opened a store in Kuwait recently, a store in Mexico before that. The Middle east and Latin America are huge emphasis for them in the next couple of years. And they also added an online marketplace, which is the same type of business model that allowed Amazon and Walmart to sort of scale up their E commerce very quickly for, you know, low overhead. What they're doing differently is they're vetting beauty brands that are sort of coming into their marketplace and listing their own things. But it means that they, you know, if a hot new brand shows up on TikTok, they don't have to like send their buyers out to that team and try to buy inventory and compete against other people for inventory. They can say to this brand, hey, put your stuff on our website, you can fulfill it directly. And then they get a bunch of dates about like who they actually should bring into the store. So they've, they've found a couple of like creative ways in a relatively short period of time to, to find additional white space where it seemed like there might not be any one thing.

Max Chaffkin (33:59)

I was wondering, as you've been talking, you've written a lot about the drugstore business. Obviously like these, the founders of this company came from drugstores. It sells a lot of same products that are available in drugstores. And like, one of the things you've talked about, you've written about a lot is the way that drugstores have basically repelled their customers, like set up all of these systems and policies that basically make them miserable to shop in. The most famous one being the locking up of everything, including some very inexpensive items. So my first question is. Yeah, do they lock anything up at these stores? I assume they have to because it seems like every retailer does that. And second, are there lessons here for other struggling retailers?

Amanda Mull (34:40)

Yeah, at some Ulta locations there are locked perfume displays. Perfume in in particular is like a, it's easy to resell Online. And it's like, very. It's. It's small form factor, high price tag. So, like, anything like that is always a shoplifting target. So some stores do have locked perfume displays. They still have the testers out where you can try them that way.

Stacey Vanek Smith (35:02)

Sometimes they'll have the tester with.

Amanda Mull (35:04)

Yes, they have the little, you know, the strap.

Stacey Vanek Smith (35:06)

Yes. Yeah. They're basically like chain.

Max Chaffkin (35:09)

Like a leash.

Amanda Mull (35:09)

Yes. Yeah.

Max Chaffkin (35:10)

Okay.

Stacey Vanek Smith (35:11)

Retractable leash.

Amanda Mull (35:12)

They have those at Sephora. They find ways to do it that sort of, like, don't harm your experience as, like, somebody who wants to touch things and smell things and experience things before you buy them. And I think, you know, Ulta and Sephora both do this well, but it's. They staff their stores. If you need something, if you have a question, if you need a recommendation, if you need somebody with keys, there's a lot of people around who can do that for you. And Ulta, also, they have tried a lot of different things in their stores as far as, like, services and events go. And I think that that sort of engages people in, like, a quite positive way that makes people want to go into a store, gets people familiar with a store near them. Like the store that I visited in New Jersey to talk to some Ulta customers, there was a flyer on the door for a masterclass in figuring out how to blow your hair out in the same way that Sabrina Carpenter does. You could go in and Ulta would have their hairstylist, like, show you how to recreate Sabrina Carpenter's hairstyle with the products that she endorses from Redken, which they can carry in their store because they have a functioning salon in almost all of their locations, which means that they can carry a lot of hair products that only distribute through salon businesses. So, you know, there's like, a real experiential element of what Ulta offers to people that I think other retailers, you know, whether it's just like, staffing the store as well, so people feel like they're getting an added value for going in or, like, you know, having events, having services, they do a really good job of making it worthwhile to come in.

Max Chaffkin (36:39)

Amanda, that was awesome. Everyone should check out the article, but you need to stick around. And we are going to talk about our underrated stories this week.

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Max Chaffkin (38:20)

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Max Chaffkin (38:49)

Okay listeners, I have great news for you, which is that we are trying a new ender this week which is that there are going to be two underrated stories instead of one.

Stacey Vanek Smith (38:59)

Yes. And you can email in to say whose was better.

Max Chaffkin (39:03)

Everybody's@Bloomberg.net all right. So I'm going to tell you mine, Stacy.

Amanda Mull (39:08)

Okay.

Max Chaffkin (39:09)

And you can give me yours. But and Amanda, I want you to weigh in. I assume that both of you are familiar with S X the everything app X Twitter.

Amanda Mull (39:16)

Yes.

Max Chaffkin (39:17)

You know, a lot of people feel like it has not really been the same since Elon Musk bought it. Usage has gone down.

Stacey Vanek Smith (39:24)

I'd say there are a lot of bots.

Max Chaffkin (39:27)

A lot of bots. The value has gone down except as An AI thing. But I want to present a sort of like a counterpoint, which is that there was an amazing literary feud playing out on X, the Everything app over the weekend. That I think is the underrated story. Amanda, I think, already knows what it is. It is Joyce Carol Oates, one of the great living American fiction writers, beefing in public with Elon Musk, the owner of X. And I gotta say, it was so funny. You're already laughing. So I think you know. But for anyone who doesn't, Joyce Carol Oates wrote kind of a lengthy message, basically suggesting that Musk was not touching grass enough. So curious that such a wealthy man never posted.

Stacey Vanek Smith (40:12)

That's like, not wrong.

Max Chaffkin (40:14)

It is 100% right, which I think is why it kind of cut to the bone a little bit.

Stacey Vanek Smith (40:20)

What did she write?

Max Chaffkin (40:21)

I'll read a little excerpt. So curious that such a wealthy man never posts anything that indicates that he enjoys or is even aware of what virtually everyone appreciates. Scenes from nature, pet dog or cat, praise for a movie, music, a book. But doubt he reads.

Stacey Vanek Smith (40:36)

Very well said.

Max Chaffkin (40:36)

Yeah. Okay, so. So here's what makes this funny is that Musk, of course, Musk reads his mentions, as I think anyone who's followed him for a long time knows he was on top of this. And he responded, oats is a liar and delights in being mean. What, not a good human? And then he wrote, eating a bag of sawdust would be vastly more enjoyable than reading the laboriously pretentious drivel of Oats. That sounds like Grok helped him with.

Stacey Vanek Smith (41:00)

That one, but boriously pretentious drivel is a laboriously pretentious sentence.

Max Chaffkin (41:05)

Ok, so this would be kind of a lame feud, I would argue, but what happened next was the best is because he spent the weekend basically talking about his favorite movies. So he likes man on Fire. He likes the Fifth Element. It's like he.

Stacey Vanek Smith (41:19)

He took the note.

Max Chaffkin (41:19)

He took the note. Yeah.

Amanda Mull (41:21)

Where I am from, the phrase for this would be hit dogs holler. Wait, what is it? Means, you know, she clearly got him a little bit in a way that he had to. That clearly avoided something in him. And I mean, Joyce Carol Oates, I am a fan of her entire posting catalog. She has put out some incredible bangers on X, the Everything app over the years, but this one was just like. It clearly unnerved him in a way that not everything does.

Stacey Vanek Smith (41:51)

It's such a simple point to make. It's like this. Do you like anything? Like, you're always yelling at the moon. Go get an Ice cream cone with one of your 13 children.

Amanda Mull (42:01)

Yeah. Watch Monday Night Football. See how it feels.

Max Chaffkin (42:04)

He does every now and then post some preference, but I feel like you watch.

Stacey Vanek Smith (42:09)

You watched for a while. Like, is this true?

Max Chaffkin (42:13)

I'd say she's mostly right. He does every now and then express a preference, but it has the quality of Rob Lowe in the NFL hat. Like a kind of a forced. I am doing this because, you know, somebody involved in advertising told me or there's been so much Nazi content this week that I kind of just like need to balance the scales a little bit or whatever. So. So, yeah. But I think it is nice that he took the note to me. This kind of redeems X a little. Like the fact that we still getting a high quality, like celebrity beef billionaire v. Big time. 95 year old author, 87 year old author, spending her twilight years beefing on X. Like, you gotta say, like, we are.

Stacey Vanek Smith (42:58)

He's a little bit changed.

Max Chaffkin (43:00)

Maybe X is alive.

Stacey Vanek Smith (43:02)

Like, maybe his life got a little bit better because of Twitter, and there aren't many people who can say that.

Max Chaffkin (43:08)

All right, what's yours, Stacey?

Amanda Mull (43:10)

Okay.

Stacey Vanek Smith (43:10)

Mine is sad. It's an ending, which is this. I can already tell Max is gonna be irritated by this. This week, I'm guessing this week, the last penny was minted.

Max Chaffkin (43:27)

Aw.

Stacey Vanek Smith (43:27)

I know, right? The penny's like the oldest form of currency that has been around since the 1700s in its kind of current form, and that shaped our culture in many ways. Like, I put in my 2 cents or all this stuff, and now no more pennies.

Amanda Mull (43:44)

Yeah. What are kids gonna put in those machines and smash in, like the gift shops at R. Yeah, exactly.

Max Chaffkin (43:53)

Yeah.

Amanda Mull (43:53)

Yeah. Like, I still. I'm pretty sure somewhere in my childhood bedroom at home, mom will have to weigh in. I probably have like a Tallulah Gorge, like, smashed penny that came out of one of those machines. What are they. What are the kids going to smash now?

Stacey Vanek Smith (44:05)

Now it's nickels, which is inflation.

Max Chaffkin (44:08)

Well, I am not upset about this, Stacey. I'm not mad, but I do. As someone who is excited about when our politics get. Gets weird, I am happy that this one thing has happened.

Stacey Vanek Smith (44:21)

End of the penny.

Max Chaffkin (44:23)

That period during the early part of the Trump administration when they were like, we're gonna get rid of the penny. We're gonna get rid of daylight savings time. We're like the get weird period of the Trump. Beginning of the Trump presidency. I don't know, I'm kind of like, I'm into it.

Stacey Vanek Smith (44:34)

I feel like you're like, okay, you're accomplishing, like, tick.

Max Chaffkin (44:36)

Yeah. This is promises made, promises kept.

Amanda Mull (44:38)

Yeah. They're in their bag right now with, like, this.

Stacey Vanek Smith (44:41)

Specifically with the penny. I mean, the penny costs more than a cent to make, so there's an economic case for it.

Alison Schrager (44:47)

But the.

Stacey Vanek Smith (44:48)

The nickel, and I believe the dime also cost more, which it just does push the price of things up.

Max Chaffkin (44:55)

No one carries around change. It's annoying. It just. It just piles up in your jar. They should get rid of all that.

Stacey Vanek Smith (45:01)

I will have you know that I was recently at the money museum in St. Louis, and I purchased. They have a lot of penny jewelry for sale, which is very reasonably priced. And I purchased a pair of penny earrings that are pretty fetching. I'll wear them next week.

Max Chaffkin (45:18)

Okay, Amanda, you heard the two underrated stories. Which do you like best?

Amanda Mull (45:22)

You know, as, like, a longtime fan of belligerent posting. No prince of any.

Stacey Vanek Smith (45:28)

I have to side with hundreds of years of history.

Amanda Mull (45:31)

Well, Joyce Carol oates is like 87 years of history and she's still national treasure. She's still. She's still out here creating value for the public.

Max Chaffkin (45:40)

Listeners, tell us which story you like the best.

Stacey Vanek Smith (45:44)

Team penny.

Max Chaffkin (45:45)

Have a favorite coin that's not the penny.

Stacey Vanek Smith (45:48)

Home to the penny.

Max Chaffkin (45:49)

Weigh in. Yeah. Let us know which one was best.

Verizon Business Sponsor/Ad Voice (45:51)

But we.

Max Chaffkin (45:52)

I think we.

Stacey Vanek Smith (45:52)

Penny for the old guy.

Max Chaffkin (45:55)

Amanda Mull, thanks for being here.

Amanda Mull (45:57)

Thank you so much for having me.

Stacey Vanek Smith (46:03)

This show is produced by Stacey Wong. Magnus Henriksen is our supervising producer, and Amy Keen is our executive producer. Sam Rogich handles engineering and Dave Purcell fact checks. Sage Bauman heads Bloomberg Podcasts. Special thanks to Jeff Muskus, Julia Rubin, and Maria Lang. If you have a minute, please rate and review the show. It means a lot to us. And if you have a story that should be our business, send us an email. Everybody@Bloomberg.net that is everybody's with an S@Bloomberg.net.

Max Chaffkin (46:29)

Yeah, you gotta tell us. Video games, perfume, whatever.

Stacey Vanek Smith (46:32)

Yeah, Max wants to know.

Max Chaffkin (46:34)

I need to know.

Stacey Vanek Smith (46:35)

And so do I. Thank you for listening and see you next week.

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