Investing in Hermes

February 2017

Last year in Miami a handbag sold for $298,000 (approximately £205,000).  A simple handbag.  Hailed as the most expensive handbag ever to sell, it was a Hermes Birkin made in bright red shiny crocodile with white gold straps encrusted with 10 carats of diamonds.    It was purchased in 2008 for half the price but never worn.    What was once considered an attractive accessory has turned into one of the world’s most lucrative investments.     Even ten years into the phenomenon, the trend continues to amaze people.

There are a number of reasons for the phenomenon.   If you consider other relatively new investment vehicles – wine, watches, and classic cars – they are all now accepted as alternative investment pieces, and are often highly profitable.   Now the once modest handbag has joined the club of these ‘passion assets’.  In general, they have become worthy investments through finite supply:  like a bottle of Romanee Conti or a limited edition Patek Philippe.    And as the world moves to more highly automated systems and machine-made goods, an awareness of the higher quality of handmade products has emerged.

The prices of classic cars started to rise in the 1990s.  An appreciation of the highly skilled workmanship, coupled with the romance and challenge of the gearstick, started to appeal to North American and then to European markets.   Cars outperformed the global stock market between 2005 and 2016.  Just this year, the 1957 Ferrari 335 S Spider Scaglietti sold for a record breaking £24.7m.

The story is similar these days with vintage bags.  On a smaller, more manageable scale.

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Mrs Thompson in Battersea, London, hadn’t worn her 1985 Hermes Kelly in ostrich leather more than twice.   Clearing through her wardrobe one rainy November afternoon she came across it and approached Lilac Blue London to value and sell it.   We estimate the bag cost her £550 in 1985.    It has just been sold at £12,000.

Or Mrs Mills in Suffolk, who had a collection of Hermes handbags bought in Las Vegas in 2000.  Her 35cm black crocodile Kelly has just gone on the market at £17,000.  The cost 16 years ago would have been approximately £5,000.
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As the Times London explained: “Consider the following: in the 35 years since it was created, the value of the Hermes Birkin has gone up by 500 percent. That’s a better return on investment than gold or the stock market…. Why has this happened? In a nutshell, because even if you can afford them, they’re incredibly difficult to buy.”

In essence the bag itself has become a loved and cherished item, and at the same time handbags have become status symbols.  So combined together, these factors have turned an everyday accessory into a powerful investment piece.

So while older and vintage bags can be sold at high prices, New Hermes Birkin and Kelly bags sell at a premium of up to 100% because buying them is a serious challenge.   There are no more waiting lists in the UK: Hermes could not deal with the queues waiting outside the Bond Street store on the days the waiting list would open.   So to buy a bag takes serious application, patience, and expenditure on other goods in the store, and as a result, it becomes extremely desirable.

Then there is the new phenomenon of the handbag as a status symbol.

Historically, Europeans would buy one lovely handbag on a very special occasion.     So a lady had one or perhaps two luxurious handbags that she could hand down.    European royalty collected handbags: the Queen has a wonderful collection of Launer handbags.  But mere mortals would only have a few pieces.    Then, over the last 20 years, the popularity of handbags has grown in general, and as Hollywood A-listers started building collections of Hermes and Chanel bags, it became acceptable for well-heeled ladies to build collections of their most cherished accessories, and Hermes is at the very top of the list of luxury houses.

The Mastery of Hermes

How has Hermes managed to stay at the top, in creating the most desired handbag the world has ever known?   There is no doubt that this was never planned.  In no time in fashion history has a handbag achieved such status. But Hermes has harnessed and managed the situation extraordinarily well.   In order to increase the desirability of the bags, the iconic French brand limits the production of certain models.  They claim that only the finest artisans are able to create the Kelly and Birkin handbags, and with each bag taking up to 25 hours to make, they are unable to keep up with the demand.  With resellers selling the bags at vast premiums, Hermes is able to increase prices year on year, up to 10% per annum.  The classic Birkin 35cm is now just over £7,000 in a Hermes boutique.

What must not be overlooked is that this phenomenon could never have taken place without the creation of extremely beautiful products.   The style of Hermes bags is generally classic: the Kelly is a relatively formal bag which works extremely well at formal occasions.   The Birkin is a more practical piece; the size 35cm can hold enormous amounts (I have carried a laptop, travel documents and an ipad in one) but has no shoulder strap.

The handbags are created with the best leathers, in the best tanneries, and in a range of colours that no other luxury house can begin to achieve.    This bleu paradis limited edition Kelly from 2016 is one of 8 different shades of blue produced by Hermes in the last 5 years.

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How to get your hands on one

If you are looking to buy a bag, first you should try your nearest Hermes boutique.  If you look beautiful and elegant enough, you may be given the chance to buy directly, if there happens to be one available.  If you would rather be able to choose the size, colour and leather, you might want to try a reseller.  Just make sure they are reputable and you can meet them before sending any funds. To buy a bag for an investment, see our article ‘how to choose an investment piece’.