Hanushka Toni

Investment returns are in the bag: luxury handbags outperform gold and property

Investment returns are in the bag: luxury handbags outperform gold and property
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Exceptions aside, Spectator readers are not consumers of luxury for luxury’s sake. They are unassuming keepers of style, guardians of distinction – and firm of belief that any claim to sophistication demands a renunciation of bling. In fact, I can only assume that this is being read by a pious confederacy of cashmere-clad clones.

You may recall the early noughties. It was a halcyon age. Everyone was flush with cash and casual credit was king. We were at our most acquisitive and if there was money to be spent, it was invariably on one thing – the obsession of the era, the latest 'It Bag'. Just thinking about it turns me all misty eyed. Such a wondrous time, before hipsters and ironic fashion statements, a time when there was no vulgarity in pining for a dead oversized python to parade on your person.

Which is why I’m hugely gladdened by the latest research. According to the JustCollecting Rare Handbag Index, the best investment you could have made in the past decade is not gold or London property. It's a designer handbag.

Prices for the Hermes Birkin bag have soared by around 500 per cent in 35 years. The classic Chanel 2.55 bag has leapt in value by more than 230 per cent in 12 years. Compare this to the FTSE 100 which has delivered returns of approximately 48 per cent in the same period. Accordingly, on an annualised basis it is the rabid consumer of luxury who profits above the prudent investor. This puts the likes of Tamara Ecclestone, Kim Kardashian and Coleen Rooney up there with the mega-minds of Wall Street for producing sensational returns on investment.

According to consultancy firm Bain & Company, in 2016 the global luxury goods market grew by 4 per cent to 1.08 trillion euros. Luxury sales are helpfully buoyed by the fact that moneyed paragons of success in emerging economies are also hapless victims of the flaunt-it culture (Bain didn’t say that, I did). Perhaps unsurprisingly, it is often clawing your way up from nothing that feeds voracious ostentation and, as Terry Pratchett revealingly said, 'sometimes glass glitters more than diamonds because it has more to prove'.

The brand at the top of the luxury hierarchy is Hermes – its Birkin and Kelly bags are the most coveted on the planet with decades-long waiting lists for the crocodile versions, which start at around €26,400 for the smallest size. That's the yearly cost of a private education or a deposit on a first home. You may think it’s an appalling amount of money being spent by similarly appalling people. And you’re quite justified. But from an investment point of view, it’s not too shabby.

And since there’s no fool like a rich fool, there are legions of re-sellers trading Hermes bags on the secondary market where they fetch double the retail price. In June 2016, a Himalayan crocodile Birkin bag smashed world records selling for £208,175 at a Christie's auction in Hong Kong. A quick search of Vestiaire Collective reveals hundreds of re-sellers offering both new and used versions. Astonishingly, due to the scarcity of supply, even a used bag commands a premium of a few thousand pounds to its original retail price. It is a gleaming example of my favourite microeconomic concept – the Giffen good, a perversion of basic supply and demand theory in that the more expensive a product, the more desirable it becomes.

Today an entry-level 35cm Birkin in togo leather will set you back £7,100 having just increased from £6,780 in 2016. That’s a 5 per cent increase. For the consumer, these annual price bumps feed the persuasion that now is the best time to buy – before there is another hike.

By the same token, for investors there’s no time like the present. The supposed resilience of the nation’s economy post Brexit is on the wane. Growth is slowing and inflation has risen from 0.8 per cent to 2.3 per cent. So why keep your cash in the bank when you could be sitting pretty on a tidy return in your wardrobe – especially when the average annualised return on a Birkin is 14.2 per cent.

Now, should you decide to take your good self off shopping (as if you needed a reason) and kick some sweet retail price index ass, there are several things to bear in mind. Always invest in the classics rather than seasonal pieces – sticking to neutral shades over violent hues. Picking styles which have been popular for decades will ensure there’ll be a market for them tomorrow. It’s unlikely you’ll be able to get your hands on a Hermes Birkin or Kelly, but the Chanel 2.55 bag or the Lady Dior are decent contenders.

Finally, don’t tell the government. Like all asset classes, even a whiff of a bubble attracts a big fat levy and tax it till it croaks seems to be all the rage right now. Remember the stamp duty surcharge? If it was anything else, I’d let it slide. But paws off my handbag.

Hanushka Toni is a freelance journalist and former private client solicitor