Luxury handbags can be an investment?


Cape Town, 16 May 2017 – There is a reason they call them “investment pieces”: at over R60,000 for a Chanel medium flap bag or R100,000 for a Ralph Lauren dress, luxury goods are meant to last a lifetime and hold their value. This is why the market for used designer goods is the most attractive category for online consignment. It is therefore not paradox to invest in luxury today, to be able to afford luxury later. But with so many brands to choose from, many get lost or buy the wrong piece. Even within the same label, the resale prices vary quite massively depending on the material or, of course, the item itself. This is where the experts from Luxity, a Cape Town start-up and South Africa’s largest source of pre-owned luxury, jump in to help and give advice.

Exciting News for Lovers of Top Quality Handbags

A few years ago, to name just one example, a Hermès Himalayan Nilo Crocodile Birkin bag was sold at auction in Hong Kong for over $300,000 (which today would roughly equate to nearly R4,500,000). That, of course, is the very top end of “super handbags”. Interestingly, many people do not realise that their signature handbag could increase in value and that handbags are becoming investment assets. The JustCollecting Rare Handbag index, however, shows that in the past decade investment-grade bags have increased in value by nearly 8% annually, which, according to the report, is due to a surge in appreciation for the bag’s timeless style.

The experts at Luxity, South Africa’s largest source of pre-owned luxury, are convinced that investing in mainstream brands is not a good long-term investment. Exotic skins, special material, gemstones and embroidery, however, can add to a bag’s value. The artistic merit of the bag and associations with fashion icons (the famous Birkin and Kelly bags from Hermès speak to that) are additional key factors. And, last but not least, condition is everything. The solution to the latter, of course, is to treat handbags like you might any other valuable possession – with love and care.

Luxury Industry in South Africa
Essentially, the local consumer base for luxury goods consists of a small base of wealthy South Africans and foreign visitors to the country. Despite this, luxury brands are still (or increasingly) attracted to South Africa by an emerging and growing middle class. In fact, South Africa – with its already established luxury market, infrastructure and quality shopping centres – is becoming something of a shopping destination, since other countries on the African continent don’t have these offerings yet.

The competitive environment is highly fragmented with the most successful luxury brands in South Africa having their own stores through which they exclusively sell their own brands. The leading companies include Louis Vuitton, Prestige Cosmetics and Surtee Group (a.o. Versace, Armani, Burberry, Paul Smith) and, according to a report by Deloitte, the South African luxury goods market is set to grow at a steady, if slow, pace in value sales.

Although the luxury market in South Africa presents high risk given the small consumer base for these items, entrepreneurs like Luke Calitz from Luxity are seizing opportunities by catering to consumers seeking exclusivity and/or brands not yet represented in the country. Luxity uses its online boutique as its first sales channel due to the fact that internet retailing continues to experience growth with consumers becoming increasingly attracted to this channel for its lower prices. Furthermore, many consumers can only afford to buy luxury brands when available on a discount, such as during sales periods, while internet prices are often generally lower than those available in stores. Or when they are pre-owned. To assist consumers, Luxity offers an interest-free 60 day layby option during which shoppers can pay off their new handbag in as many instalments as they like.

The Only Bags Worth Investing in Right Now
When it comes to investing in a luxury handbag, it is crucial to not only find a style you truly love, but to educate yourself on which specific handbags will hold their value and never go out of style. A very high-end and exclusive handbag, like the Hermès Birkin, is forecasted to double in value in the next 10 years. But that’s not the only bag worth scooping up. “To get the most resale value for your bag, just follow this one piece of advice: invest in the ‘holy trinity’—Chanel, Louis Vuitton and Hermès. While the value of luxury handbags can fluctuate due to trends or buzz, these three iconic brands in certain styles have the most resale value,” Calitz explains.

The resale value of Hermès depends on the style, type of leather, and hardware. The main power behind the Hermès brand lies in their limited quantities. This creates an unparalleled level of scarcity and exclusivity. While there is no such thing as a wait list, there is a certain wait period for your dream Birkin or Kelly—depending on your relationship with your Hermès salesperson, the amount spent at their boutiques, and pure luck. The Birkin specifically is the most sought-after handbag of all time. On the arms of celebrities including Victoria Beckham, Kate Moss, and the entire Kardashian-Jenner clan, this bag has exponentially increased in popularity. The desire it transcends both retail and resale—and Luxity stylists are constantly searching for them for their customers. Birkin bag retail prices range from R100,000 to R250,000 and can see resale prices up to R350,000. Most Birkins retain or increase in value, again depending on leather, hardware, and demand. If you happen to score the exclusive, highly sought-after black Birkin with gold hardware, or otherwise known amongst fashionistas as the ‘Holy Grail’, this bag will pay you back manyfold. The Hermès Kelly bag, in honour of Grace Kelly, also retains or increases in resale value. It is a classic and also happens to be a favourite of many celebrities.

While the Birkin once made headlines for beating the S&P 500, this is not the only handbag that has outperformed this market index. In 2015, you could have purchased a Chanel medium flap in caviar leather for about $1600. This same exact bag 10 years later retailed for $4900. That is a 206% return (not adjusted for inflation). Whereas, in the same time span, the S&P total nominal return was just under 50% (not adjusted for inflation). While the JSE shows a performance around 300% at the same time, this figure also does not take into account a devaluation of the Rand around 80%. The resale value of this bag also retains or increases depending on leather and hardware.

Another bag to consider for investment is the Chanel Boy bag. While this model is fairly new – Chanel introduced it only in 2011 – the Boy bag has already become a classic. Five years ago, it started at $2500 while it today starts at $5100. It typically retains at least 90% of its resale value.

Last but not least, you might want to consider Louis Vuitton and its ever popular Neverfull. At Luxity, this style continues to be one of the fastest-selling handbags (with a very long waiting list). The Neverfull remains sought after due to periodic price increases and high demand and is one of Louis Vuitton’s all-time most successful bags that comes in endless options of materials as well as limited editions and special artist collaborations. It retains – if it’s in pristine condition – about 80% of its resale value unless it is a rare limited edition bag – which can have an even higher resale value.

Used Chanel Bags Are Worth a Lot. But Marc Jacobs Not So Much
Luxity, South Africa’s largest resource of pre-owned luxury, recently tapped its database of luxury goods from several dozen high-end designer brands to find which brands have the highest resale value, and which ones hold their value the longest. “We found that Chanel, Louis Vuitton, Christian Louboutin, and Hermès hold their value the longest, while Tod’s and Versace lose their value the fastest,” explains Luke Calitz, Director at Luxity. Gucci, Prada and Burberry are somewhere in the middle.

One of the most important factors is availability and discounting. If a luxury brand frequently discounts its goods at outlet stores or online via flash sales, consumers will perceive that they don’t have to pay full price for that brand. Brands actually have to be careful where they allow their products to be sold. For example: Chanel and Hermès do not hold sales in their stores and they have a limited number of outlet stores. Chanel doesn’t even sell its goods online, with the exception of beauty products. “In that sense, it creates a perception of purity,” Luke says. “The brands then back it up with design quality and heritage,” he says. “If I buy something, I will think, ‘Wow it has long term investment value.’”

Invest in The Right Bag
Luxury brand handbags by certain brands are often of a higher quality design and make, with classic lines. They can last and look good for years, without really going out of style. With certain labels and styles, they are classic enough to hold value in the resale market as long as they are taken care of (especially if they are part of the aforementioned ‘Holy Trinity’ consisting of Chanel, Hermès and Louis Vuitton). When you don’t need to buy another bag for years or even decades, and have the option of getting a decent price out of it years later, it is a kind of investment. Additionally, many high-end hand bag makers offer repairs, refurbishments, and warranties on their goods. So, do you prefer one bag at R15,000+ that can last 20-30 years, or a different, cheaper bag every few months? In the end, it is a matter of how much you value craftsmanship, quality, and keeping up with trends.