Rumor has it that Hermès sales are slowing down and inventory levels rising. Hard to tell since their 4th quarter revenue climbed 17.5%, and the company announced plans for another 8 to 9% price increase later this year1. The reason I bring this up is because a friend of ours just went to the Hermès store at the Landmark Prince’s in Hong Kong and purchased a black Birkin 25 off the shelf. The significance of this is that she is not a regular customer of Hermès. She did not have to first spend the cost of the bag ($12,000 USD or 94,000 HKD) on scarves, wallets, or other stuff just to have the option to purchase the bag.
For those readers who don’t know, Hermès bags are notoriously elusive and difficult to get your hands on. Either you have to be a long-time customer of the brand to purchase direct from their stores, or you buy second-hand at an even higher price. O
Luxury goods have been on a tear these last few years. When I worked in banking over a decade ago, a 24-year old analyst used part of her annual bonus to purchase a $2,000+ Chanel bag. At the time, I thought it was nuts. But now, $2,000 would be considered a bargain.
They (those who purchase Hermès bags and the like) call them investment bags — high-priced, designer handbags that are considered timeless pieces that increase in value over time. Not all designer bags are investment bags though. The most famous and obvious ones are Hermès and Chanel, both of which have announced price increases as frequently as several times a year. It’s a strategy for the brands to remain elite and shun mass-market appeal.
But is it really an investment, or is more just something you say to justify the extravagant purchase? More importantly, how does investing in a handbag stack up against traditional investment vehicles, like the stock market or even just a high yield savings account?
A 2021 review by Baghunter suggested that the Hermès Birkin outperformed the S&P 500 and gold with an annual average value increase of 14.2%. This statistic begs a more profound reflection – are luxury goods the new gold standard in investment?
Let’s look at two desirable the price appreciation of two of desirable investment bags:
The Classic Flap bag was introduced in 1983 after Karl Lagerfeld took the helm at Chanel. It's a reinterpreted style of the original 2.55, but featuring the double-C lock closure (Mademoiselle lock) and a leather chain strap. There were two versions of the Classic Flap: Double Flap (with an extra interior flap) and Single Flap (discontinued after 2014 for Classic Flap models).
In 2021, the new name of 11.12 (named after the style code AO1112) emerged to refer to all Classic Flaps.
For our purposes, we will therefore treat the names "Classic Medium Flap", "Classic Medium Double Flap" and "Classic 11.12 Handbag" as being synonymous.
The Birkin style, named after singer/actress Jane Birkin, was first introduced in 1984 when Jean-Louis Dumas became head of Hermès. Birkin comes in several sizes. An Hermès Birkin 30 is the second smallest size, measuring 30 x 22 x 16 (centimeters) -- hence the name "30" -- or 11.5 x 9 x 6 (inches). There are also Birkin 25, 35, 42, 45 and 50.
While the Birkin 25 is the smallest, it's also the rarest, often reserved for the "best" customers. It can go for substantially more than the larger bags on the secondary market.
Finally, Togo refers to a smooth and grained type of leather that is made from calfskin. It's known for being durable and resistant to scratches, making it a popular choice for handbags and other accessories.
This chart summarizes the retail prices from 2013 to 2014 for each of these two investment bags:
Note that this chart displays retail prices, which are set by the brands.
The Hermès Birkin 30 Togo increased in price from $10,200 in 2014 to $12,500 in 2024. This comes out to a modest, average annual price increase of an 2.1% per year.
The Chanel Classic Medium Flap bag increased in price from $4,900 to $10,800 for the same 10-year time frame. This translates to an average increase of 8.2% per year. Chanel has been much more aggressively raising its prices, a move to elevate its brand and perhaps go head-to-head with Hermès bags.
But the real investment returns aren't driven by retail prices, at least not directly. Instead, investment bag returns are realized through sales in the resale market.
Hermès bags, particularly Birkin and Kelly bags, are difficult to acquire. The company highly restricts the supply available. Sometimes called quota bags, they require that you spend a certain threshold or quota on other items to be eligible to buy a quota bag. If you’re not already a loyal customer with a purchase history, be prepared to first spend what the bag costs before you can buy the bag itself. Or, find a friend who is a long-time customer to get you one. Even then, you may not even be able to get the specific style you want -- it depends on what the Sales Associate brings out to show you (which may or may not depend on availability.
Because of this supply and demand dynamic, resale prices are dramatically higher than retail prices. Low (restricted) supply coupled with high demand drives up pricing where there is supply (secondhand markets). Specific colors, sizes and styles may be in even higher demand and/or lower supply.
Just take a look at TheRealReal. All screenshots below were taken on April 16, 2024.
Let's say you bought a black Togo Birkin 30 in 2014 at the retail price of $10,200. You took very good care of that bag, so that it just has minor discoloration and scratches. After ten years, you decide to sell it on TheRealReal.
TheRealReal shows that pre-owned Hermès Togo Birkin 30 bags in "Very Good" condition sold for $10,000 to $20,000. I presume (an educated guess though I could be wrong) that the black version (right) is at the high end of the price range, because it’s a standard, hard to get color.
If you sell that bag today, you would receive a payout of $16,000 (80% commission9 x $20,000). You would net a profit $5,800 profit, which would be a 57% return.
If you had purchased a different color, say orange, your payout would be around $8,000 after fees — a loss of $2,000.
Now, let's say we bought a new Togo Birkin 30 in 2023 for the retail price of $11,600. We decide to sell this bag in 2024, having nevr used the bag.
On TheRealReal, 2023 Togo Birkin 30 bags in pristine condition with tags are going for $24,000 to $26,000.
Selling your bag for $26,000 would get you a payout of $20,800 after TheRealReal’s 20% fee. Your profit would be $9,200 ($20,800 - $11,600) or an 80% return in one year.
If you purchased a Chanel Classic Medium Flap bag in 2014, it would have cost you a mere $4,900. Let's assume that ten years later, the bag is in great condition with minimal scratches and discoloration. On TheRealReal, Classic Medium Double Flap bags in "Very Good" condition are going for $8,000.
Selling a Classic Medium Flap today would get you a payout of $6,400, after subtracting the platform's 20% selling fee. Your net profit would be $1,500 or 30% return on investment.
What if you bought a new Classic Medium Flap and sold it right away as new? Today, you would pay $10,800 for this bag. On TheRealReal, these bags in "Pristine" condition with tags are currently listed for $9,0000 to $9,700.
Unlike Hermès bags, Chanel bags don't offer the same arbitrage opportunity. In this example, if you sold your bag for $9,700, you would incur a loss of $3,040 after fees.
To summarize, of the above four examples, buying and reselling an Hermès bag as new (Example 2) earns you the most profit:
We already know that the Chanel Medium Classic bag is not a good investment. The numbers just don’t work, perhaps because supply is not as controlled as tightly by the brand; these bags are not as difficult to obtain. Note that Chanel has been implementing a stricter policy limiting the number of purchases per customer on certain bags. So this may change.
With Hermès bags, there do seem to be scenarios where you can get a decent return. But here are the considerations:
In Example 1, if we bought an Hermès Togo Birkin 30, held onto it for ten years and sold it on TheRealReal, we would have made a $5,800 profit or 57% return. This is equivalent to a 4.6% average rate of return per year. This would have underperformed the S&P 500, which had an average return of 10% per year over the last decade. If you had invested the $10,200 instead in the S&P 500, with compound interest, you would have $18,267 at the end of the ten years, so slightly more than the $16,000 payout from reselling.
In Example 2, buying and selling an Hermès bag as new with tags would yield us a return of 80%. That's hard to beat using any other investment strategy in one year.
So why not purchase Hermès bags then for the purposes of reselling immediately? Because the strict limitations on the number of Hermès bags you can purchase directly from the brand each year means that you cannot buy in bulk to secure more potential returns.
Further, even when you can get access to purchasing Hermès bags, you may not be able to choose the color or style to maximize resale value. As we saw on TheRealReal, colors like black are high in demand, while other less desirable colors command lower resale prices.
As mentioned at the start of this article, demand for Hermès bags (and the broader, global luxury market) seems to be softening and inventory is growing. As inventory supplies at retail stores begins to increase, exclusivity falls, and resale prices must then fall in line as well.
If you believe that’s going to happen, then maybe the prospects of appreciation aren’t so great for an Hermès bag.
One of the keys to maximizing the investment potential of an Hermès bag is purchasing it at retail price, which is significantly lower than the resale market values. However, buying a bag directly from Hermès can be challenging due to long waiting lists and the brand's policy of offering bags to established clients first, making it difficult for new buyers to acquire them at retail.
Buying on the secondhand market or fulfilling a spend quota first would reduce my ability to have an attractive return on my investment.
The condition of an Hermès bag is paramount in determining its resale value. It could mean a difference of $10,000 or more. Investors should take meticulous care to maintain the bag's condition, including storing it properly, avoiding overuse, and addressing any wear or damage immediately. Basically, don’t bother enjoying use of the bag if your MO is investment returns. You'd need to exercise strict self-discipline and refrain from using the bag, if that temptation is there for you.
Selling fees can significantly eat into the investment returns, so finding the most efficient and economical way to sell the bag is necessary for maximizing profits. I used TheRealReal in my examples, because it is a trusted platform for luxury goods. They do a lot of the work for you too -- photograph, list, ship, validate authenticity to give buyers peace of mind, and give you access to a large installed base of users. The 20% is a steep fee but well worth in my opinion for reselling.
If you can reduce your selling fees on another platform, then that will make the investment all the more attractive. Ebay fees are 9%10 for handbags.
Or, better yet, if you can find a buyer to sell direct to, that would cut out all middle-men fees - it's a win-win for you both.
I can certainly see the allure of acquiring an Hermès or Chanel bag. And there can be a decent profit earned when purchased as a collector's item, preserved. Personally though, I’d rather invest in equities where I can get a potentially higher longer-term return and benefit from compound interest . That doesn’t mean other people shouldn’t though. By all means, purchase one if you want (and can afford)! But if we're being honest, it's probably not the investment appeal so much as the desire to own a highly coveted, expertly-crafted symbol of exclusivity, which is okay too.
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1 M. Spencer, "Hermès sales outstrip luxury rivals, send shares to record high", reuters.com, February 9, 2024 [Online]
2 M. M. Dusil, "Chanel Increases Prices for 2023: Here’s What You Need to Know", purseblog.com, 2023 [Online]
3 A. Odell, "Wild Luxury Price Increases, In Charts", amyodell.substack.com, January 12, 2024 [Newsletter]
4 The BOPF Team, "A Timeline of Classic Chanel Bag Price Increases Over the Years", businessofprelovedfashion.com, August 20, 2022 [Online]
5 "Hermès Birkin & Kelly Prices 2023: How Much Have Prices Increased?", pursebop.com, May 9, 2023, Updated January 2, 2024 [Online]
6 A. Mull, "The International Hermès Birkin Price Guide", purseblog.com, July 2016 [Online]
7 "Hermès Birkin Price 2015", closercsac.com, October 10, 2015 [Online]
8 "Hermès Prices 2018 Update: UK First To Go Up", pursebop.com, January 3, 2018, Updated June 4, 2018 [Online]
9 TheRealReal Seller Commissions, therealreal.com, April 18, 2024
10 Ebay Seller Fees, ebay.com, April 18, 2024
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