As much as the phrase “buying as an investment” gets thrown around when it comes to purchasing branded items, especially high-end bags, the vast majority fail to qualify as investment assets, despite their hefty price tag. This is because luxury fashion as an industry is built on emotional appeal while investments are meant to be exercised with a rational and disciplined approach.
Buy high, sell higher
Those that make the cut as investment assets, quite often, witness generous annual appreciation values, placing themselves in the league of widely tracked indices including the S&P 500, which rose by an average of 14% per year in the last decade up till end June 2019, according to Bloomberg.
The trading of these coveted luxury items has become a big business. There is the Rare Handbag index which tracks the price trends of popular designer bags using an analysis of auctions and private sales. While this index increased 170% in absolute terms between 2004 and 2018, returns for mainstream assets such as oil rose only by 33% over the same period, according to Bloomberg statistics.
Listed below are some due diligence tips to maximise the bag or belt for your buck.
Much of what makes these luxury items so valuable boils down to good old supply and demand dynamics. Prices go up when supply falls and demand surges.
Although demand for specific items can sometimes climb with a rare design which would make it a collector’s item, certain seasonal designs which fall out of production risk losing value as their visibility among buyers drops and their demand declines as a result. On the flip side, those worth buying tend to be staple items that are in constant production. To minimise price fluctuations, items are released in limited quantities to keep supply low and at the same time, ensures demand by having the items within sight of buyers.
In this day and age of the internet, any hype created around products translates to demand. This parallels market sentiment, that is, the overall investor attitude towards the financial markets and is sometimes referred to as crowd psychology. For instance, when popularity and sales of a particular bag soars, the hype of an ‘IT bag’ is applied to cement its status.
A handful of designer houses are known as creators of these desirable bags rather than enjoying fame for one or two specific models. In finance, while past performance is not necessarily indicative of future performance, buying something from a label with a history of churning out hyped-up ‘IT bags’ increases the chances that you would be purchasing something of investment value.
Fund managers recognise that the market can be irrational for periods of time, and turn to underlying principles of assessing investments using fundamental analysis for clarity.
Similar to how fund managers measure the intrinsic value of a stock using fundamental analysis, fashion enthusiasts look for features such as high quality craftsmanship, iconic design and colour etc, that renders a classic look and higher versatility of use. Conversely, a design flaw in the item would likely render a negative impact on the resale value.
The other major school of thought when it comes to approaching the markets lies with technical analysis which analyses historical market data such as price and volume.
When it comes to buying a designer items, ‘technical analysis’ can be gleaned from past reports of the volume. When these statistics are unavailable, access to forums, social media platforms, blogs and even magazines can gauge the level of interest around a product. Hence the number of mentions of a product in Facebook and Instagram are clues to the level of market demand for a luxury item.
The desirability and demand for any item can be gauged from the margins between the retail price from the designer store and the resale market price. More often than not, designer aficionados are more inclined to invest their monies in an item which can be resold at high values on the secondary market. The greater the desirability and enduring demand for the designer item, the higher the reselling price.
Furthermore, it is not uncommon to find online resellers listing highly-priced designer handbags a notch above retail or extremely popular ones fetching astronomical prices at auctions.
Investing into something carrying emotional value does not always translate into financial return. While a shrewd eye for designer goods as alternative investments is handy, gains in the luxury consumer discretionary sector are still dictated by an invisible hand, fed by human desire for status, beauty and exclusivity.
From 2014 to 2018, the value of a Medium Classic Flap bag from Chanel increased in value by over 250% in absolute terms, according to the Rare Handbag index. The S&P 500 meanwhile rose by 205%. A separate study done by Baghunter and published with Business Insider in January 2016 revealed that the value of Hermès Birkin bags increased 500% in the last 35 years till 2017, an increase of 14.2% per year. By comparison, the S&P 500 saw an annual increase of 11.5% from during the same period.
All statistics on the S&P 500 are taken from Bloomberg as at 30 June 2019.
This publication shall not be copied or disseminated, or relied upon by any person for whatever purpose. The information herein is given on a general basis without obligation and is strictly for information only. This publication is not an offer, solicitation, recommendation or advice to buy or sell any investment product, including any collective investment schemes or shares of companies mentioned within. Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, UOB Asset Management Ltd (“UOBAM”) and its employees shall not be held liable for any error, inaccuracy and/or omission, howsoever caused, or for any decision or action taken based on views expressed or information in this publication. The information contained in this publication, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available and reflects prevailing conditions and our views as of the date of this publication, all of which are subject to change at any time without notice. Please note that the graphs, charts, formulae or other devices set out or referred to in this document cannot, in and of itself, be used to determine and will not assist any person in deciding which investment product to buy or sell, or when to buy or sell an investment product. UOBAM does not warrant the accuracy, adequacy, timeliness or completeness of the information herein for any particular purpose, and expressly disclaims liability for any error, inaccuracy or omission. Any opinion, projection and other forward-looking statement regarding future events or performance of, including but not limited to, countries, markets or companies is not necessarily indicative of, and may differ from actual events or results. Nothing in this publication constitutes accounting, legal, regulatory, tax or other advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person. You may wish to seek advice from a professional or an independent financial adviser about the issues discussed herein or before investing in any investment or insurance product. Should you choose not to seek such advice, you should consider carefully whether the investment or insurance product in question is suitable for you.