Are Luxury Handbags good investment?
We have definitely stumble across individuals claiming luxury items like watches and handbags are good investment vehicle due to excellent resale value. As watches and handbags are subjected to depreciation due to wear and tear, and also the usual out-of-vogue nature of the fashion industry, I have always been a skeptical. Nevertheless, we shall take a closer look and attempt to answer the question, are luxury hand-bags a good investment vehicles?
Looking at the Top Performers from 2004-2016
Clearly, we see that Chanel 2.55 Medium Classic Flap leading at 10.5%, followed by Hermès 1990’s Cognac Leather Birkin 40cm at 10.32%. We see that the top 10 performers yield a minimum of 6.79%. Clearly, we see that Hermès having 2 models on the top 10 list yielding a minimum of 6.79%. While the S&P 500 annual returns for the period of 2004-2016 was yielding about 4.49%, meaning if you happen to own any of these bags, you deserve a pat on the bag for beating the market. However, it is a screwed comparison by taking the top 10. Nevertheless, due to insufficient data we will be extending the sample size into 19 different bags.
Chanel 2.55 Medium Classic Flap (+10.55%)
Hermes 1990s Cognac Leather Birkin 40cm (+10.32%)
Christian Dior Lady Dior Cannage (+8.52%)
Louis Vuitton Classic 25 Monogram Speedy (+6.79%)
Assuming we took each bag in the list above as our “portfolio” for diversification, and how the distribution changes due to different evaluation of each bags from 2004-2016. Comparing the annual returns for our makeshift bag “portfolio”, the annual returns is 7.8% beating the S&P 500 by 3% points. Similarly, brands like Hermès, Emilio Pucci, and Christian Dior have also beaten the S&P 500 for over 3% points over the period of 2004-2016.
Selecting investment worthy luxury brands are akin to stock-picking, we need to understand the underlying economic factors governing the surge or dip in pricing. Potential investors should look for 3 main factors to guide their investment decision which are the brand, supply and skins.
Brands that have stood the test of time have proven to outlast the vicissitudes of fashion or even overproduction. Labels like Hermès, Emilio Pucci, Christian Dior, Louis Vuitton have good resale value by default of the strength of the brand.
Supply or rarity is the second factor in selecting the right brand, limited or special editions would restrict the supply available on the market and hence driving up the price.
Exotic skins are the third factor in choosing your next collection, bags made with exotic skins or even special materials on clasps and buckles, gemstones and embroidery can add to value. However, due to lack of exotic skin prices over the years, we are unable to pursue an in-depth analysis of the contribution of the hid increase to the surge pricing in exotic bags.
Apart from selecting the right investment, it is also crucial to maintain the conditions of the products. The solution is to treat these “investment” like any other valuable asset class by depositing in the bank. Bags should be placed in only dust-jacket commonly available online around USD 20. Do not place bags in plastic bags as it will suffocate the leather, ruining your collectible. Bags should also be stuffed with tissues papers and kept away from sunlight.
With rarity comes with the problem of liquidity do the fact that luxury handbags remains a niche market. Finding a buyer at the right price might be a problem given the low supply. However ecommerce marketplace like Guiltless that focus on the luxury handbag market might be able to solve this problem.
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