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Luxury as an Investment?

Behold the Enid: a handbag made from the softest goatskin, lined in vivid, peach-colored silk. Its silhouette “draws on the art of corsetry with its distinctive hand-stitched corded leather,” according to luxury-goods house Smythson of Bond Street, which makes several tempting versions of the bag. The price tag: $1,660.

The Enid
Source: smythson.com
The Enid

A year ago, the Enid would have been considered a splurge. The recession was mostly an unproven rumor, and consumption for consumption’s sake was still in style.

But today it’s a different world. The Enid is most certainly not a splurge; rather, it’s “this season’s investment accessory of choice,” says a Smythson advertisement.

The international economy’s implosion has blindsided the luxury-goods industry, and in the current vacuum of across-the-board spending, luxury companies and retailers have been scrambling to find ways to remain relevant in today’s flat-lining marketplace.

One of the more visible and startling changes is an abrupt change in marketing semantics. As Valérie Hermann, CEO of Yves Saint Laurent, recently told Women’s Wear Daily, “There are still people with money, but we have to talk to them differently.”

In advertisements and editorials, there has been some remarkable script rewriting going on: Conspicuous consumption—which was all the rage in glossies and on billboards not long ago—is deeply passé; the new chic—even in the elite realm—is being a smart-value shopper. When the Louis Vuittons of the world co-opt the lingo of Walmart, you know you’re in the middle of a business-culture shake-up.

“They’re just changing the slogans,” says Dana Thomas, author of the best-selling book Deluxe: How Luxury Lost Its Luster. “It used to be, everyone deserves a little luxury and a little splurge. Now that no one can afford the splurge, the business executives are all scratching their heads and saying, how can we repackage this again? So now you’re buying ‘quality things that last forever.’ ”

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Thanks to such repackaging efforts, 2009 appears to be year of the “investment,” as seen in Smythson’s ad for the Enid. The new verbal engine to which the luxury industry is attaching the rest of the train, “investment” references are cropping up everywhere: Suddenly consumers are being urged to build “investment wardrobes” as opposed to making trend-driven seasonal ones. Magazine editors—who rely on luxury brands as advertising cash cows—instruct readers that there is no better time than the present to “invest” in the durable and expensive classics: a Burberry trench coat, or perhaps a Cartier Tank Watch (an eventual heirloom for Junior), or the Chanel 2.55 handbag in caviar leather (which will never go out of style), etc.

This is a curious use of the term investment. Editors and retailers appear to be saying that well-made “quality” (not “luxury”!) items are likely to carry you through several seasons, or even decades, which is why they make good “investments,” as opposed to dubiously made, flash-in-the-pan trend items that fall apart (or worse, go out of style quickly).

Even with this clarification, there is something vaguely dishonest about the use of the term investment; moreover, this seems like an odd time to encourage the once-greedy-and-now-subdued masses to shell out thousands of dollars for anything but necessities. No matter how narrowly the term investment is used within the new marketing context, the underlying implication is that these items are literal investments, i.e., objects that will hold or increase their value. In most cases, this notion is simply untrue.

“Investment is the concept that you invest $1,000 to get back $5,000 in the future,” says Pam Danziger, a consumer-insights expert at Unity Marketing who specializes in the luxury market. “The idea that any of these consumer goods are going to grow in value is just ridiculous. They’re like cars: The minute you take them out the store, they lose half their value.”

Luxury-goods experts point out that in troubled times consumers have tended to purchase jewelry, which has a perceived inherent value—meaning, you believe that if you needed to sell that diamond in a pinch, you’d get around the same amount of money that you spent on it initially. (More on this delusion below.) Those peddling today’s luxury products as “investments” seem to be trying to import this perception—that aura of undiminished perpetual value—to the realm of leather handbags and other luxury goodies as well.

The Hermès Birkin bag is often touted as such an “investment.” While classic in sensibility, the Birkin became a badge of excessive disposable income during the “Because I’m Worth It” era. Case in point: Pop icon Victoria “Posh Spice” Beckam reportedly owns about 100 of them, a collection perhaps worth $2 million. The more basic Birkin bags retail for between $6,000 and $7,000; Forbes listed a crocodile Birkin (with nearly 10 carats of diamonds on the hardware) as being one of the world’s most extravagant handbags when it sold for $120,000 at auction house Doyle New York.

Doing the math

Like so many luxury items, the Birkin has recently been reborn everywhere from magazine editorials to the fashion blogosphere as the emblem of “good value for money.” But how good an “investment” in the literal sense is the Birkin?

Let’s say that you are in possession of one of these mythical creatures—a relatively modest one: a blue, 30-centimeter one made from togo leather with silver hardware—that you purchased for about $7,000 in 2007.

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You decide to sell it via an elite designer resale boutique—such as New York City’s Fisch for the Hip, which currently has 15 secondhand Birkins for sale—which then decides to retail it for $8,300. (The uptick in price is because would-be buyers are circumventing the notorious Hermès Birkin bag waiting list, the fashionista’s version of cutting the lunch line.) It sells after five months on the high shelf, and the store takes a 25 percent cut, leaving you with around $6,000—a 15 percent loss.

That’s not so bad, you might say—but remember that the Birkin is the gold standard of luxury goods; other more easily obtained luxury “investment” items being touted today would take a much greater hit. For example, Celine’s Boogie bag, which retails for around $700, hovers on the secondhand market for about $300. Try selling that $995 Burberry Ivybridge trench at Fisch for the Hip. It might go for $500, and with a 50 percent commission for apparel, your “investment” has dwindled down a staggering 75 percent in value.

Not even jewelry can be considered a reliable investment. As Danziger points out, “Even if you melt down the gold and sell the emerald, you’re still not getting back what you paid for it, because there was the initial design element that you paid for.”

And yet, at a time when the word investment conjures up images of a flattened cake—or the gates of Mordor—maybe the luxury marketers have a point. After all, for people who’ve been beaten within an inch of their lives by stocks, a five-figure bag that loses a mere 20 percent of its value might look like the golden ticket.