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Investing in Luxury Handbags: Unboxing the Myth

April 19, 2017

Investing in Luxury Handbags: Unboxing the Myth

 

Part I: The Myth Of Investing In Luxury Handbags

We’ve heard them all. The marketing blurbs that suggest looking at handbags as investments. These blurbs usually refer to ‘investments’ in a colloquial sense, and what they mean to say is that high-luxury bags are unlikely to lose their charm, admirable qualities, or value. But some go even further, and claim that investing in handbags is much better than investing in stocks. Those, however, tend to offer very little if any evidence on exactly how buying a luxury bag could result in a monetary return on your investment. This unavoidably leads to critics shooting down the idea of 'investing in a bag' and say that these marketing blurbs are just that - marketing, designed to get you to justify a four-digit purchase. So, which one is it? Are luxury handbags really investments or is that just an empty statement? 

In recent years, prices for luxury handbags have increased and are projected to keep rising. A research study on the value of Chanel bags by Baghunter , found that the Chanel Medium Classic Flap Bag has “ increased in value by a whopping 71.92% between 2010 and 2015, far outperforming housing prices in the United States, the S&P 500, and inflation.” And although this is technically true, this claim from Baghunter remains a little misleading when looked at closely. 

Baghunter Chanel Study

Selected Medium Classic Flap Bag prices from 1955 to 2016, from Baghunter's "Chanel Bag Values Research Study"

The S&P annual rate of return, meaning the return for the stock market per year, for that period is around 10%. The annual rate of return for the Chanel Medium Classic Flap Bag for that same period is however slightly better than that - 11%, beating the stock market without yet outperforming it by much. Furthermore, the study only refers to rising prices - it would be a different story if one was to buy a Classic Flap in 2010 and then tried to resell it 5 years later (in 2015) expecting to sell it at the same price as a brand new bag in store.

In addition to Chanel, when people talk about investment handbags, they usually talk about Hermès, and more specifically,  the Birkin bag . Well, Fusion looked at the prices of Birkin bags over the last 35 years and found that, contrary to what many people have said about Birkin bags, the rate of return was lower than the return of the stock market for the same period of time. That same article ended with the following statement:

Handbags are not a good investment, and never will be. My advice: if you want a Birkin bag, spend a couple of hundred dollars on a high-quality fake replica, and put the rest in an S&P 500 index fund. In 35 years’ time, it’ll be worth much more than any handbag you might have been able to buy .”

Ouch! Sorry friends, it seems like the bottom line is that we’re better off buying fakes.

We are kidding, of course! But how could it be possible that one side promises a safe investment while the other laughs at the idea? To properly assess and understand if a handbag can be an investment, we must first agree on the meaning of the term investment, and more specifically, what qualifies as a good investment.  

 

Part II: How To Invest in Luxury Handbags

Decoding The Word 'Investment' 

There is often a misconception around the word 'investment', and therefore, people disagree whether investing in luxury handbags is a good idea or not. As we mentioned in Part I, most people use the term 'investment' to refer to a smart buy . In other words, an investment is any kind purchase that is actually worth money and that will end up saving you more in the long-run. Generally speaking, and as long as you pay an amount close to market price, luxury handbags are one of the smartest purchases you can make, due to their quality, rarity, durability, and the fact that they hold their resale value well.

In a more literal, strictly financial meaning, an investment is an asset that is purchased in order to generate income in the future. The most common investment products are stocks, bonds, and mutual funds. Clearly, luxury bags have nothing to do with traditional investments. However, they fit the description of alternative investments, which are assets that hold value. These include items such as art, wine, stamps, and luxury watches, and their value can only be realized when the item is sold. So the question is, can handbags be an investment comparable to these products? And can handbags promise an attractive reward without major risk?

To understand if investing in luxury bags is worthwhile, let’s unpack the whole investing process. There are three main actions that are worth considering: buying the asset, holding the asset, and selling the asset.

Buying: Find the right piece

The first step to invest in a handbag is to look for the right item. According to Tradesy CEO Tracy DiNunzio , the brands that hold their best value are Hermès, Chanel, and Louis Vuitton. This is due to supply and demand, since the demand for these bags is so high that sellers can earn more than the retail price they paid initially. " The safest thing is to buy the classic styles and shapes that are already proven, because they stand the test of time, like the Chanel 2.55 bag or the Louis Vuitton Neverfull or the Hermès Birkin ." In addition to the classics, anything waitlisted or limited edition is your best bet - think the Fendi Karlito charm . “ The stuff that's in the middle doesn't have that much resale value, " DiNunzio says . Furthermore, if you want the best return on your investment, we have found that it is imperative to buy bags that are in 'brand new' condition.

  Fendi Karlito Charm

The Fendi Karlito charm sold-out completely when it was first released and was sold for twice its value on the secondary market. 

The second piece of the puzzle is to look at the price. If you buy something that is overpriced, it doesn't matter how good of a seller you are - you are not going to get your investment back. A key insight is to buy your fashion investments secondhand. “ To some degree, bags are kind of like cars ,” says Sarah Davis, founder of Fashionphile . “ You drive them off the lot and they automatically lose value. Most bags are like that .” For example, you can buy a bag that is in 'brand-new' condition from a marketplace or a reseller, and enjoy significant discount from what you would pay at the store.

Holding: Care for the bag

You have to be honest with yourself and know why you are buying the bag. Most of our clients qualify as ‘smart shoppers’ - women who buy the bags because they love fashion luxury and they come to us to find bags that are sure to be worth their money. For our smart shoppers, the goal is to take great care of the bag as you use it, so it can uphold as much value as possible. According to Sarah Davis, “ if you keep your luxury handbag in good condition and use it for a year or so, you can resell and it and get up to 85 percent back if it’s a luxury piece ”. This would qualify as an investment in the smart buy sense of the word. 

There is another, smaller albeit growing, segment of our clients, who we call the ‘fashion collectors’. They buy a bag with the main purpose of generating a monetary return, and for them, the holding period is all about patience and timing. It is necessary to keep the bag safe in storage and make sure to keep everything that comes with the bag. The more of the original packaging you have when you resell, such as dustbag, box, receipt, and tags, then the more the item sells for.

Selling: Choose the right moment and the right channel

There are two main variables to keep in mind when you are trying to sell you handbag: price and time. The ideal is to sell fast and to sell high, but in the absence of an ideal offer, you must balance both factors.  People seldom consider time as a factor, but think about it: if you get a good offer right away, it might be worthwhile to cash-out and use that money to feed your next investment. On the contrary, if you wait too long, you can be stuck with your investment capital tied up to a bag that doesn’t sell, and you will incur the opportunity cost , which is the cost of other alternative investments you are missing out on. The key is to know the market price of the item so you can price accordingly, to be patient enough to get a few offers, and to be flexible when you receive an offer close to your asking price. In order to get the best offer, you also need to consider which is the best sales channel for you.

The rise of online secondary markets has revolutionized the concept of investing in fashion luxury because it has allowed millions of people to resell their items. There are different channels to consider when you are ready to sell, and it all depends on what works best for you. If you are looking for a business that will do the work for you, the best options are Fashionphile and The RealReal. The great thing about these services is that they do all the work for you, from taking pictures to finding a buyer. The downside is the high fees associated with the whole process, ranging from 30% to 40% of the sale. Also keep in mind that they determine the price for you, which is usually far from the market price.

If you are looking for a place where you can get the most money, and you don’t mind putting more of an effort, then your best options are eBay and Tradesy. eBay has the lowest fees, with a 10% platform plus a 3% transfer fee, and remains as one of the most efficient tools to sell your handbag. The downside with eBay is that there is a large amount of scammers disguised as buyers. We wrote a post  titled How To Avoid Getting Scammed When Shopping Online, with lessons to protect buyers and sellers from online scams. Tradesy is the eBay for fashion. As opposed to eBay, the amount of scammers is very low due to their trust team, who does a great job at screening their users. Tradesy also offers an authentication service for free that allows you to make sure the bag is authentic when buying on their platform. Unfortunately they have recently just adjusted their commission fees to 15% on top of the 3% transfer fee.

All of the above are great options to consider and it comes down to choosing what works best for you, and the effort you want to put in. Remember that there is also the ‘do it yourself’ option, which would include reaching out to your personal network and handling the transaction via PayPal. This takes the most effort, but we have seen great success from our clients who use social media to advertise their bag. 

 

Part III: The Investment Theory

To determine if investing in luxury handbags is a worthwhile endeavor, it is important to assess the inherent risk and the potential reward. In other words, is the juice worth the squeeze?

The Risk

There are a variety of risks involved in becoming a fashion investor. Our idea is not to scare you away, but to give you the lay of the land so you can avoid potential missteps. Sticking with our investment framework, when you buy the bag you run the risk of buying the wrong bag, from the wrong seller, at the wrong price. When you have the bag, you run the risk of damaging it or losing the original packaging. And finally, when you sell the bag, you could sell at the wrong price, at the wrong time, to the wrong buyer. 

There are many ways to hedge against all of these risks, many which we will explore at a later date in more detail. However, the best strategy is to make sure you are content with the possibility of keeping the bag. Because if things go sour and you are having trouble selling the bag at the price you had in mind, the worst that can happen is that you have to keep, and proudly use your dream bag. 

The Reward

A study from Finnish university Arcada, which analyzed quantitative data from a Parisian auction house specializing in Birkins, found that handbags generated a profit when resold in an auction. Of course, the results varied depending on the item and the years of manufacturing and reselling, but on average all the bags generated a positive return. Supported by the data comparison and calculations, the study concluded that “ luxury handbags do not depreciate and they tend to generate noticeable profits ”.

Portfolio allocation, global average

Global average of portfolio allocations. Luxury handbags qualify as the first category, 'Investments of passion.'

As promising as this study was, we are in the early stages of investing in handbags. There is no stock exchange for luxury handbags, at least as of yet. According to a study from Scripps College , “ gaining insight into how one may approach luxury handbags as investments based on empirical data is relatively new and under-researched .”  So we can’t say what is the average rate of return for all luxury handbags, or all Chanels for that matter. So here is where traditional investors get cautious. And as well they should, because you have to understand the basics of luxury handbags to be able to invest in them. The exciting part is that this creates an opportunity for women who are passionate about the subject.

In the absence of hard data, let’s to look at examples of people who have been successful fashion investors (in the future, we will also explore examples of people who have been unsuccessful to learn from their mistakes). One of the most famous is Michael Tonello , who made a living by purchasing Birkins and reselling them online. In his book, Bringing Home The Birkin , Tonello details how he bought dozens of Birkins from Hermès stores all over Europe, and then resold them to his eBay clients, netting around $5,000 per sale.

Bringing Home The Birkin by Michael Tonello

In his book, Bringing Home The Birkin, Michael Tonello details how he made investing in Birkins his business.

Recently we also wrote a post about David, the husband of one of our most loyal clients. David and his wife Zoey, have made it a hobby to invest in hard-to-acquire pieces and sell them online. They travel the world to buy their items, and use the earnings from their sales to pay for the trips. David’s advice for the partners of fashion lovers is to be ‘smart’ about what to buy. “ They are going to spend the money anyway, so might as well be on something that is worth it .”

Last but not least, take it from us. We founded our company on the firm belief that luxury handbags can be investments. Our biggest lesson learned so far has been the concept of Smart Luxury - and we encourage our clients to be smart with their purchases. Luxury handbags have a good possibility of appreciation and generating profit, but only when chosen carefully.

The Bottom Line

So there you have it. Those marketing blurbs and studies we mentioned at the beginning are right when they say luxury handbags are good investments, in the ‘smart buy’ sense of the word. But those that promise a certain rate of return usually don’t get it right, for several reasons. The most important reason being that not all bags are created equal, and therefore, not all bags will guarantee a good return on investment.

Chanel, Louis Vuitton, and Hermes

Hermès, Chanel, and Louis Vuitton have been dubbed 'the holy trinity' of investing in handbags. 

On the other hand, the critics we mentioned at the beginning also miss a key point. Their main argument against investing in handbags is showing how aggregated pricing data over time performs against the stock market. However, as a fashion investor, the pricing trends of different luxury brands is not the most important factor to consider when investing. Instead, we should pay more attention to factors that directly impact the investment process (buying, holding, and selling). One of these critics, the author of the Fusion article that suggested we are better of buying fake bags, did get it right eventually when he said that “ some Birkins, to be sure, sell for enormous sums on the secondary market. But that doesn’t mean they all go up in value .”

Handbag collectors are proving that a well-chosen investment bag can generate excellent returns. You can be a successful investor, but you have to play it smart during the investment process, knowing what to buy, how to take care of it, and when to sell it.

Our recommended strategy here at The-Collectory is to treat handbags as a passion investment, where the bag is a personal indulgence, but it comes with a very high possibility of a considerable appreciation and an attractive resell. If things don’t go as expected, you get to keep the dream bag that you desire, but if there is enough demand, you can sell it and make a nice profit for yourself. This is a fail-proof approach and the best way to hedge the risk of the downside, which makes investing in handbags a win-win strategy.

 



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