Luxury handbags and watches continue to beat out other collectibles when it comes to annual returns. Hermès and Chanel bags, along with traditional Chinese works of art and luxury watches, namely those from Swiss titan Rolex – are among the alternative investments that have delivered notable returns (even amid the pandemic-induced downturn and enduring macroeconomic and geopolitical shifts), and that stand to provide the most effective shield from rising inflation, according to a Credit Suisse and Deloitte report.
Reflecting on the performance of various types of assets in recent years in their newly-released “Collectibles Amid Heightened Uncertainty and Inflation” report, Credit Suisse and Deloitte highlight luxury handbags and watches as among some of the most striking, noting that watches, jewelry, and handbags – “especially Chanel handbags” – are “clearly standing out as stores of value with low volatility (between 2.5 percent and 5 percent annually) and low drawdowns,” and with annual returns that average between 4.5 and 6.5 percent. (The two firms note that collectibles can be classified like financial assets, such as store of value assets, which are characterized by “low risk, low volatility and in general, mid-single-digit returns,” and medium-to-high risk capital growth assets.)
In 2020, Credit Suisse and Deloitte found that wristwatches (and jewelry) saw “moderate single-digit returns” on average. The caveat here comes by way of Rolex collector watches, which “outperformed by +8 percent.” Luxury handbags rose more strongly that year – with Chanel bags up +11.8 percent and Hermès Birkin bags up by +38 percent, they found.
These returns are compared to those from fine art (+2% according to the Sotheby’s Mei Moses All Art Index), classic cars (+6.2%), and fine wines (+5.4%). All the while, impressionist and modern art, old masters, British paintings, and American art “all recorded moderately negative returns in 2020, [and] contemporary art and Latin American art was modestly up.”
In 2021, which saw strong rebounds in sales and performance of collectables, annual returns for collector Rolex watches rose by 33 percent, and returns for Chanel handbags were up by 24.5 percent, per Credit Suisse and Deloitte, “likely boosted by the scarcity of Lagerfeld-designed bags.” Interestingly, Chanel’s rise in return stands in “stark contrast to Birkin bags,” the return on which was actually down by 3.5 percent.
Hermès Birkin bags, in contrast to Chanel bags, have had “higher volatility, more comparable to that of global bonds or hedge funds among financial assets,” according to the firms, which note, however, that Hermès’ iconic Birkins have a “better risk-reward” than Chanel bags. (The information ratio, which puts returns in relation to volatility and thus, reflects, the risk-reward, is “particularly noteworthy” for Rolex watches and Chanel handbags, which boast “very strong information ratios of 200 percent or higher,” meaning that “the average annual return of 10 percent for Rolex watches, for example, is double the usual fluctuation range of 5 percent.”)
Looking ahead, Credit Suisse and Deloitte state that as 2022 has been marked by a more elevated inflation regime and higher interest rates, “Lagerfeld-designed Chanel handbags are likely to continue benefiting from the scarcity effect in the next few years,” and make for the “best inflation protection (as measured by performance in extreme inflation periods).” They are followed by traditional Chinese works of art, and wristwatches, in particular ones from Rolex, which appear to be “the ideal inflation all-weather stores of value.”
The report comes on the heels of a trio of aggressive price increases for Chanel in 2021, with the brand upping the price of its small Classic Flap bag by approximately 30 percent in 2021, following from an increase of 21 percent in 2020.(Price tags for its Classic Flap and 2.55 bags rose in November 2021, alone, by as much as 15.5 percent, sending prices of its Classic Small Flap and Classic Medium Flap bags up to $8,200 (from $7,100) and $8,800 (from $7,800), respectively, and its Jumbo and Maxi Flap at $9,500 and $10,000.)
At the same time, Chanel has also been looking to exert greater control over the distribution of its offerings, including by introducing quotas to crack down on the quantities of bags that consumers can snap up from its stores each year. Such efforts by the French luxury brand have garnered comparisons to the strategy of rival Hermès, whose wares have been touted for years as among some of the most investment-worthy assets. A 2016 report from resale company Baghunter, for instance, stated that based on a study of annual returns over a 35-year period (from 1981 to 2016), Hermès’ iconic Birkin bags make for a “better investment” than S&P 500 stocks or gold. Hermès’ pricey handbags are the “safest and least volatile investment market of the three,” Baghunter asserted at the time.
Jefferies echoed this sentiment a couple of years later, with analysts stating in a note in February 2018 that Birkin bags could give rise to annual returns of more than 30 percent.
The price hikes seem to be directly resulting in boosted revenue, with Jefferies analysts stating in a note in conjunction with the release of Chanel’s 2021 revenues (the company reported $15.6 billion for the year ending on December 31, 2021 – up 49.6 percent compared to 2020 and 22.9 percent compared to 2019), that the sales uplift is “purely pricing driven rather than volume driven.”
Enduring success for the company in terms of its most coveted handbags maintaining stable returns will likely be helped by scarcity, particularly as Chanel looks to cut down in individual buyer volume, per Credit Suisse and Deloitte. As for the brand’s “broader evolution in luxury handbags,” they state that that “will be determined by its ability to sustain collectors’ excitement going forward.”