Handbag as investment: truth or myth?
Can we allocate a portion of our savings/wealth to designer handbags? It is tempting to say yes. The incessant price increases from luxury brands have a history of outpacing inflation. If you were wise enough to have bought a handful of Chanel classic flaps in the 1990s and 2000s, you would have certainly made a return on your cash spent if you were to sell them today, assuming you have kept the condition of the handbags decently well (and that you’re willing to part with them).
Luxury handbag sales has skyrocketed since the start of the 21st century. In fact, luxury products associated with women’s wardrobe have steadily gained importance with more women entering and staying in the work force. This is fairly easy to explain - women no longer need men to buy them expensive handbags and jewelry, and with double-income households becoming increasingly the norm, women can afford to allocate a larger share of their monthly disposable income on items they desire.
So, how wise is it to ‘invest’ in handbags? As a finance professional by day (and sometimes by night as well - let’s be honest), I have analyzed the merits of this ‘investment’ proposition with real-world data.
Here’s how I think about it, when we invest our hard-earned cash in something, we’re generally looking for a ‘return’ on our cash. This return can take the form of recurring income stream (such as a rental property) or capital appreciation (such as investing in gold). It is clear to us that a handbag cannot generate a recurring income stream the way a rental apartment can (unless there’s a way for you to rent out your handbag on third party platforms), so when we talk about investment value of a handbag, we’re mostly talking about capital appreciation (when you actually sell the handbag).
Clearly, there’s only ‘returns’ to speak of if you sell your handbag for a profit (after any transaction costs / commissions paid). Assuming that is the case, what are the key drivers of ‘returns’ on a handbag? Let’s breakdown the key components of the potential ‘return on investment’ for a handbag:
Factors which increase potential returns:
Price increase: this is the most obvious component of any potential return. If luxury brands never increase their prices, you would never be able to sell your handbag at a higher price than when you bought it (except the case of highly limited hard-to-obtain items). I would also put general inflation in this category as price increases generally cover (if not in excess of) general inflation. The longer the period you hold your handbag, the larger this effect will be.
Resale premium: this is when the resale value of an identical (brand new) item on the secondary market is higher than the current retail price in stores. This may not apply to all luxury handbags. In fact, it only applies to very selective brands/styles when the item in question is very difficult to obtain in stores (such as the Hermes Birkin / Kelly / Constance or certain seasonal colors of the Chanel classic flap or other highly coveted seasonal styles).
Factors which reduce potential returns:
Aging / wear & tear: these two factors go hand-in-hand. After all, a handbag is not indestructible like gold. The more you wear it, the more ‘signs of wear’ will show. Even if you don’t wear it, the sheer force of gravity or the humidity in the air will cause the handbag to lose its original shape or leather texture etc.
Commissions or transaction costs: this is what it costs you to sell your handbag. Unless you have a platform which allows you to reach a wide audience to sell your own handbag, you probably need to sell the item through a consignment shop or a third party site which typically charge between 15-30% commission on the sale price. This inevitably eats into a good chunk of any potential investment return.
I have not included other factors such as the storage cost of the handbag. I’m assuming that most of us probably do not incur substantial storage cost unless we’re professional handbag investors. However, if you have a large collection, and you store your handbags in a temperature / climate controlled room with security systems and insurance policies on theft and damage, then of course you’d need to factor those costs into the calculation of any potential returns.
Let’s visit couple examples.
Example I:
Take the below Kelly 25 in Togo leather Retourne style, recently sold on The Real Real (“TRR”) for $24,000 (2021 Kelly bag sold in 2023):
For the sake of this analysis, we’ll make a few assumptions:
The owner originally bought this bag in the boutique in the US with 8% sales tax
The commission paid to The Real Real was 20% on this particular sale (which is a reasonable assumption per TRR’s commission grid on consignment items). If the seller ‘sold’ the bag to TRR directly (vs. going the consignment route), the implied commission paid would be much higher (in the 50% range)
The owner held this bag for exactly two years (2021 to 2023), ignoring any fractional years for the purpose of calculating annualized returns
If I crunch the numbers based on above data and assumptions, we would see that the total return on invested cash is 88.1% over the two-year period. This 88.1% can be broken down into the below components:
What this means is that the return on this seller’s original investment was largely driven by the resale premium on Hermes bags in the secondary market. It is important to note that this resale premium is essentially taking a snapshot of what an identical brand new bag would sell for in the secondary market compared to the retail price in boutiques at the same point in time. I have estimated this based on retail prices and the secondary sale price of a pristine condition handbag with the same specifications (size, leather, retourne/sellier).
Wear & tear and commissions reduced the total return from what would have been c.147% to 88.1%. The reason why the commission accounts for 47% of the returns reduction while it is only supposed to be 20% is that the 20% commission is computed on the sale price (which is much higher than the purchase price) while the returns % is computed on the original cash investment.
Now, if we compute the returns on an annualized basis (which is how we usually look at investment merits because ‘time is money’), we get the following picture:
37.2% annualized return on investment! That is not shabby at all by any means. However, results like these are difficult to achieve on a consistent basis because firstable, it is notoriously difficult to obtain an Hermes Kelly bag in boutiques, not to mention the pre-spend amounts you’d need to drop before being able to purchase the Kelly bag at retail prices. If the seller of this particular bag bought it on the secondary market, the resale premium bar of the above charts would disappear, and the resulting return on investment would be negative because of wear & tear and commission. Similarly, if the seller had to spend a substantial amount on other Hermes items in order to be offered this Kelly bag, the returns would correspondingly be reduced. However, with 88.1% of total return on cash, we can probably conclude that as long as the pre-spend ratio is less than 0.88 : 1, the seller would still have a positive return (though much reduced).
Example II:
What about those of us who like to really use our bags and hold it for a long time? Let’s look at another example of a Kelly 25 in black Box leather Sellier style, sold on The Real Real in 2022 and originally purchased in 2010, condition was listed as “Good” which reflects the long holding period and the fact that the bag was well used and loved. If we apply the same assumptions and principles as in Example I, we’d get the following annualized rate of return:
In this example, we get a very different picture. On an annualized basis, due to the long holding period, both price increase and resale premium contributed roughly equally to the final returns (as opposed to if you flip the bag, the resale premium would be disproportionately large while price increase would be small over the short holding period). Wear & Tear / aging was a larger contributor to returns reduction because of the extensive usage reflecting the “Good” condition of the bag. The final annualized return, however, is still positive at 3.9% although much lower than the 37.2% in Example I. Is this a good return? Not if you compare to the annual inflation observed over the same period (annualized inflation between 2010 to 2021 was roughly 2.0% with 2022 observing an outsized inflation rate of 8%). The return of 3.9% per year only covered the annual inflation by a small margin.
However, we cannot discount the fact that the owner of this particularly handbag enjoyed the Kelly 25 bag for over a decade. Even though this enjoyment is non-monetary, it is no doubt highly valuable to the owner. From this point of view, I think the 3.9% return on cash is really not bad at all.
Most of the time, we ‘pay’ to use handbags, but in this case, the owner ‘was paid’ to use the gorgeous Hermes Kelly bag. For this reason, I’d say that’s a fantastic deal!
My conclusion:
So what is my verdict on handbags as an investment? I can only say for Hermes quota bags as my data is based on them. There may be similar effects with other highly coveted and difficult to obtain handbags, though I suspect that Hermes bags, at this particular point in time, are probably the most ‘investable’ bags. I will need to collect more data on other handbag brands (Chanel classic flaps perhaps?) to draw more conclusions.
However, based on my Hermes data, I’d say that if you’re able to purchase Hermes quota bags in boutiques, without spending unnecessarily on Hermes items you would not have otherwise purchased if not for the chance to be ‘offered’ a quota bag, then they are definitely a fantastic investment whether you’re looking to sell them opportunistically over the short term or use it over the longer term. I emphasized ‘spending unnecessarily’ because if you’re like me, you only purchase Hermes items that you can afford and truly like and would purchase anyways. When I purchased my first Birkin 30 from the Hermes rue de Sevres boutique, I did have a substantial purchase history, but it was built over multiple years with items which I purchased without even the thought of buying a quota bag. Because of this, I don’t think of the money I spent on these items as part of the ‘cost base’ of my Birkin 30 - I would have bought them anyways.
As with any investment, there are pros and cons. We all know what the pros are - in addition to storing our money in these bags, we get to enjoy a beautiful and well crafted product backed by a brand that has stood the test of time. The cons, however, are that with any handbags, they are non-income generating and you’d only get the returns when you actually sell the bag (it would be admittedly difficult to part with them). While you own the bag, you’d need to store them properly and risk thefts or damages. That is why I’d recommend allocating only a small portion of a savings portfolio to such handbags even though they can be considered ‘investment handbags’.
Disclaimer:
As always, do your own diligence when committing serious money to anything. This blog post represents my personal opinions only and is not investment advice.