The Lux List / Business of Luxury

Hermès handbags leads 2020 as top performing alternative asset class

In a crisis, people look towards tangible safe haven investments, Knight Frank Luxury Investment Index shows Hermès handbags continued to outperform most asset classes

Jul 02, 2020 | By Jonathan Ho

 

Knight Frank has been doing the wealth report for 14 years now and when the consultancy realised that clients didn’t just want to hear about property insights, they took a quantitative look at their aspirations. Noticing the rising trend of investments of passion (classic cars, art, fine wine, watches, Hermes bags, etc), Knight Frank introduced Hermès handbags into the Luxury Investment Index (KFLII) in 2019. With 13% annual growth, Hermès handbags were the year’s top performing asset class.

According to Rachel Koffsky, head of handbag sales at Christie’s, the market began in 2011 and in just under 10 years, has gone from emerging to a mature market. The auction house began with  a series of Elizabeth Taylor auctions that really celebrated the Hollywood diva’s collectible passions, among them – Hermès handbags; and this was one of the first forays that Christie’s had into the online auction market space, and her handbags captured such an intense level of interest from collectors and new clients at Christie’s that the auction house really saw the opportunity to expand this department and so in 2012, online handbag auctions became a regular feature at Christie’s.

Hermès handbags leads 2020 as top performing alternative asset class

Koffsky recalls that it was really unusual to have a department at Christie’s focused on Hermès handbags. But as the auction house continued to invest in this category and invested in consumer education about the collectability and the desirability of handbags, Christie’s saw that the results were really astounding.

Launching live auctions in Hong Kong and New York in 2014 and then later in London in 2017, Christie’s set a world record price for an Hermès handbag sold in Hong Kong that same year.By 2018, Christie’s set the European record for most viable handbags sold in Europe at auction. Koffsky looks fondly at the track record which grew from a niche into a regular fixture on the auction scene, “Last year we had our first 100% sold hand dyed auction, and that was at King Street in London in November. So we’ve really seen this category going from something that was quite niche, a little bit unusual, you might say, and now we’re really seeing that this is something that is widespread it has fans all around the world. I think that what’s really fascinating is that five or 10 years ago there were men and women who would never think of themselves as a handbag collectors because it seems a bit frivolous. In reality, the Hermès handbag is something that’s really valuable, it’s something that is intellectual, creative and it does really touch on every level of being an investment piece as well as as a luxury object. The way the market is going now is clear indication that handbags have been a growing interest for many investors over quite a number of years.”

 

Sebastian Duthy, Director of Art Market Research, tells a similar story, breaking down for Knight Frank the key drivers of demand and rising investment value for Hermès handbags:

The market for collectable handbags emerged after 2008 and was driven in part by consumers thinking harder about where they were spending their money. Attention was inevitably drawn to high quality bags made by Hermès, which had until then been a well-kept secret by discerning French clients and a few beyond.

By 2011, it was getting harder and harder to get hold of these bags and the rush was on – particularly in the Far East. A few auction houses and resellers were quick to see the opportunity and consigned second-hand bags, many of which had recently been bought in store.

Average values dipped briefly as re-sellers regrouped and by 2015, the market more than doubled in size. In the last three years, the most celebrated Hermès handbags have regularly been breaking price records at auction. Bags such as Hermès ‘So Black’ Birkin and the Hermès Lizard Ombre are just two of a handful of bags whose prices are driven by influencers drawing attention to them.

In the past few years, interest in the collectable market has widened to include many other brands, including Chanel – the second most popular. While records are grabbing news, most won’t be surprised to hear that not all bags are suddenly very valuable. Astronomical prices apply to just a few pieces and while many iconic bags will have been uplifted by recent trends at the top of the market, condition is key.

A considerable size of the resale market is already composed of ‘young’ bags and so there is a high level of expectation among collectors that buying at auction shouldn’t mean settling for anything less than excellent condition.

How has the market been affected by Covid-19

I would say that around 90% of collectable handbags can be bought online and so the lockdown hasn’t prevented buyers continuing to shop in this way. However, there’s been a definite shift in favour of the buyer who is now increasingly expecting what some in the auction industry are calling a ‘Covid price’.

An Hermès Himalaya Birkin – the world’s most expensive limited-edition handbag with examples regularly fetching over $200,000 at auction – was consigned to a Sotheby’s timed auction on 1 June this year with an estimate of $85,000 to $100,000, but failed to find a buyer. It’s true also that collectors who are considering spending around $100,000 on a bag generally want to see it in person and so the lockdown is likely to have played a part.

Christie’s Rachel Koffsky, has slightly different perspective on how the Covid-19 pandemic has affected luxury consumption and auction values. She told Knight Frank, “We’ve seen at Christie’s that at times of economic uncertainty collectors look to invest in alternative investments such as luxury items. So in fact in the past couple weeks we’ve had a number of auctions that have been extremely successful to get a 99% sold jewelry auction in Hong Kong. We had a Hong Kong handbag sale which close just a couple weeks ago which was 96% sold. So we’re really seeing that in these times collectors are continuing to invest in these pieces that hold their value. And we actually have an online auction right now of handbags out of London that’s tracking ahead of our averages with four days to go.”

The coronavirus accelerated a number of trends and so Knight Frank’s Anna Ward asked Koffsky if she sees online auctions stepping into the gap entirely and what the future for live auctions looks like. Koffsky replied, “I referenced our online sales from 10 years ago so this is really a marketplace that Christie’s has been heavily invested in for a really long time. We have the ability to be innovative and nimble when something happens, and we have to change course. Earlier this year I was planning for a live auction in July but after the coronavirus hit, we decided to change course and have an online auction.”

What’s interesting is that every single live auction that we’ve ever had at Christie’s in the recent years has also been online we stream these sales to clients around the world. My last live handbag auction in November had visitors from 44 countries on six continents. So we’re really able to expand our reach. And I find that this is an opportunity for me to connect with my collectors around the world. I had a lecture, last week with 180 clients in India. It’s [the pandemic] giving us an opportunity to be creative in this really difficult and trying time.

The Rise of Handbags as an Alternative Asset Class

Christie’s Rachel Koffsky shares with Knight Frank the most expensive bag she ever sold, “In 2019, we set a European record for a white Hermès Himalaya Birkin with 18 karat white gold and diamond hardware. And this went for 267,000 pounds. This is the European record price for handbags held at auction, and in November of 2017, we sold. Another piece which was similar in Hong Kong and that sold for 2.98 million Hong Kong dollars.”

Does the coronavirus pandemic change people’s mindset? Are different brands now more valuable than they were previously?

The brands which have always captured the highest level of attention at auction, continue to be the ones with the highest sales results. These are brands such as Hermès, Chanel, Louis Vuitton, Bottega, and Dior.  Hermès continues to be the leader in the secondary market and this is really because of the way the bags are made, the history of the brand, the craftsmanship, the materials. These pieces are really crafted in a way that not only are they an investment, financially, but they’re an investment in terms of 20 years from now, you’ll have the bag, taken really good care of it, and you’re able to give it to the next generation or possibly sell it.

Art Market Research’s Duthy shares similar trend observations in terms of brands and specific types of bag emerging from his index data as well, he said, “In the UK, collectors are gradually shifting in their views. An Hermès bag used to be a one-off investment for life, but now more and more people are finding reasons to have more than one. The greatest demand for luxury bags has, for a long time, come from the Far East. After the lifting of the lockdown in Guangzhou in April, Hermès reported their biggest ever sale in one day at the shop there. Other luxury retailers, such as Chanel, were also confident about the pent-up demand and raised retail prices between 17% and 24% prior to reopening. With great meaning attached to different colours in China, collectors will refresh their wardrobes with new bags in colours to suit spring and winter. Exotic skins are also high in demand, especially as regulators around the world seek to tighten the trade in endangered species.”

Who’s buying? Who’s investing in this alternate investment class?

The category is definitely younger than most collecting categories at Christie’s, which isn’t to say that we don’t have collectors of all age ranges and bags is a really wonderful introduction to the world of auctions because it’s something that consumers are very used to buying whether it’s at the mall or at Harrods, it’s an object that’s functional and doesn’t have the barrier to entry. If you were to go into a gallery and purchase your first photograph or print. So we’ve always been attracting younger clients. However, we do see today that millennials and Gen Z’s are really interested in the resale market, they’re interested in conversations around sustainability and they’re very savvy they do a lot of research before they make a purchase. And so they are very heavily engaged in the auction market really for the first time in the past couple of years,

When you think about a handbag, it’s such an interesting object because it’s such a different piece of property in so many different contexts. So, yes, there’s a high investment value. It’s a collectible like a watch it’s valuable like a piece of art. It’s an heirloom, it’s a sentimental object, it gives you great pleasure and joy to collect these pieces but it’s also really functional and you carry it with you every day perhaps it’s the most expensive item in your wardrobe. That represents your style, it’s a status symbol. So it’s really such a multifaceted object that I find to be so intriguing. But really most of all what’s so interesting is when you buy an auction you’re really transacting at market value, it’s not going into a shop swiping your credit card, not knowing you know what went into it you know that when you buy something at auction somebody was bidding 100 below you you’re getting a definition of market value and that gives collectors great comfort in times of economic uncertainty.

In 2019, Hermès handbags were the top performing asset class up by about 13% over the previous 12 months. That’s not to say they’ve been the top performer over the past 10 years. In 2018, a rare whiskey enjoyed value appreciation of over 500% over the past 10 years. The growth of these different asset classes are largely dependent on rarity and in the case of classic cars, the liquidity of those particular markets. Classic cars performed strongly after the last global financial crisis. In situations like these, people look towards tangible safe haven investments so the index is really a reflection of different attitudes towards investments at different times and a deep, quantitative look at why people want to buy these things: Primarily, it is the joy and love of ownership people, the investment aspect is always slightly secondary.

 


 
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