Business Of Fashion : Can Luxury Bags Be Smart Investments?

Can Luxury Bags Be Smart Investments?
As top luxury labels raise prices and tighten distribution, designer bags are garnering higher prices at resale, with some styles from coveted brands retaining a significant portion of their retail value long after purchase.

KEY INSIGHTS
  • With the accessibility and availability of bags in the primary market disrupted during the pandemic, demand heightened for the most exclusive brands on the resale market.
  • On The RealReal, average prices for designer bags are up 26 percent compared with 2019; prices for popular Hermès, Louis Vuitton and Chanel styles are up even more.
  • Designer bags have become a category in their own right at auction houses, with the likes of Sotheby’s and Christie’s auctioning them for significant sums.

When Meg Randell started her career as an auctioneer a decade ago, many of the clients she met with were used to selling traditional assets like old paintings or antique ceramics, and never thought the bags sitting in their closets could prove as valuable.

Yet today, the auction house regularly sells Chanel and Louis Vuitton bags for thousands of pounds at auction. Rare editions can fetch even more: in July, Bonhams sold a well-used Hermès Birkin 35 that belonged to Jane Birkin herself for £119,000 ($143,334), almost eight times Bonhams’ original £15,000 estimate.

“I’d see couples coming in, and the guy would be like, ‘Well, she thinks her handbag’s worth something,’” said Randell, now head of designer handbags and fashion at London auction house Bonhams.

“What’s interesting is I almost never have those conversations anymore,” Randell said. “Almost everybody understands that there is value in these bags. Whilst it might not be the intrinsic value of jewellery … they’re finally being really appreciated as having the sort of extended lifespan of really beautiful objects.”

In years past, luxury bags from brands other than Hermès weren’t thought of as something whose value could increase over time, or even an asset class at all. That is generally still the case: beyond Birkins and Kelly’s, whose short supplies have long fuelled markups in the secondary market, most bags continue to depreciate after purchase. Yet as primary market prices rise and top luxury labels tighten distribution, bags are garnering higher prices at resale, with some styles from coveted brands are retaining a significant portion of their retail value both at auction and on online resale sites.

At luxury consignment site The RealReal, average prices for designer bags are up 26 percent year-to-date compared with 2019, roughly mirroring broader hikes in the primary market. (In the US, the average price for a designer bag has increased 27 percent since 2019, according to research from BoF Insights.) Yet among the three most popular brands — Hermès as well as Louis Vuitton and Chanel — prices have increased as much as 55 percent. In the case of Chanel, a pristine condition classic medium double flap bag can sell for above current retail value, according to the resale site. Even with signs of wear, the style commands on average 74 percent of its current retail price.

Price Rush

Much of this shift is linked to escalating prices more broadly in the primary market. For example, Chanel’s classic medium flap bag, which retailed at $4,400 in 2012, costs almost $9,000 in stores today.

“That type of appreciation for the most part is faster than inflation, and faster than some other assets,” said Cynthia Houlton, global head of fashion and accessories at Sotheby’s.

The most exclusive brands have helped drive designer bags to become a category for auction houses, with the likes of Sotheby’s and Christie’s selling such bags for significant sums. The surge in popularity prompted the research arm of property company Knight Frank to introduce bags as a tracked investment class in its annual Luxury Investment Index in 2020, joining watches and vintage wines, among other categories.

Hermès bags have long commanded the highest prices on the secondary market, but increasingly other mega brands are catching up.

“While you might buy a Hermès bag and sell it a few years later, and make a profit, there are other brands like Chanel and Louis Vuitton, where you might not make a profit, but actually you’ve had the bag for years and you still realise 80 percent of the original value on the secondary market,” said Bonhams’ Randell, “which is kind of incredible — particularly for people who maybe bought the bag 10 years ago without ever considering that one day they could sell it for a real amount of money.”

Resale sites have experienced similar changes. Before the Covid-19 pandemic, the online resale market was growing fast, thanks to the rise of specialist luxury resale sites like The RealReal, Hardly Ever Worn It (HEWI) and Rebag, while shopping for second-hand luxury goods started to shed the stigma of diminishing the quality or specialness of a purchase.

During the pandemic, demand heightened for the most exclusive brands on the resale market as many shoppers redirected their discretionary spending from restaurants and holidays towards items like designer bags, prioritising top luxury brands and classic styles that they felt would remain culturally relevant over a long period of time.

With accessibility and availability in the primary market disrupted thanks to supply chain constraints, shipping delays, travel bans and store closures, an influx of new customers turned to the resale market to get their handbag fix. For brands that already tightly controlled distribution, resale was the only way many first-time shoppers could access their products. A Saint Louis tote from Goyard, for example, retains over 90 percent of retail value on average on The RealReal, even when well-used, the platform said.

“With the few brands that are holding out from e-commerce, they don’t have the same accessibility from the primary market if you’re not shopping in-store or have your sales associate that you’re working with,” said Kelly McSweeney, merchandising manager at The RealReal. “That unintentionally paves the way for resale, where people can … get that immediate gratification.”

Now, handbag prices on the secondary market are beginning to stabilise, as many shoppers return to pre-Covid spending habits, said McSweeney. But demand for bags “continues to be really strong,” she said. “The handbag demand shows no signs of slowing down anytime soon.”

Trendy vs. Classic Styles

The accessibility and affordability of a bag will determine how much of its retail value it holds at resale. But what’s happening in stores — and the products the most desirable brands are pushing — can change dynamics pretty quickly.

About six months before Dior relaunched its saddle bag in the summer of 2018, Bonham’s Randall had a vintage purple ostrich Saddle style for auction, priced at about £300. It didn’t get any bids. However, following Dior’s re-release of the style, Randall put the vintage bag back on offer and it sold for nearly £2,000.

The resale price of Dior increased 40 percent last year compared with 2019, according to Bernstein analysis of data from luxury bag resale platform Rebag.

At luxury resale site HEWI, average selling prices for Prada and Fendi bags this year are up 48 percent and 78 percent respectively compared with 2019 levels. Sales director Natalie Kurukgy attributes the surge to the reboot of vintage styles like the Fendi baguette and Prada’s nylon range, as well as heightened interest in Fendi’s Peekaboo bag.

That said, the average selling price for a Fendi baguette or Peekaboo bag at HEWI remains around the £1,000 mark, compared to around £2,000 for a baguette or £4,000 for a Peekaboo at Fendi’s stores. By comparison, “in the case of Chanel and Hermès, customers are willing to pay close to market price for the right bag,” she noted. Ultimately, the most exclusive brands — in terms of price and scarcity — are the ones that command the highest levels of desirability.

“If we think of Chanel, and Louis Vuitton, I think a lot of the reasons why their most classic bags are retaining and gaining in value is it takes a long time for a brand to build that trust, create that provenance to create this iconic image of these bags,” said Sotheby’s Houlton. “You just can’t do that overnight.”

>>> US Close Dow -0,47% S&P -0,22% Nasdaq +0,00% Russell +0,18%

Closing Stock Market Summary

Today's trade was marked by a lack of conviction on either side of the tape. The major indices could not escape their narrow trading ranges and closed with modest losses. Market participants were playing a waiting game ahead of Fed Chair Powell's speech at the Jackson Hole Economic Policy Symposium on Friday. The 10-yr note yield remaining above 3.00%, rising oil prices, and a weak July new home sales report also acted as limiting factors today.

Market breadth reflected the general lack of conviction with advancers roughly in line with decliners at both the NYSE and Nasdaq at the close.

Mixed action left mega caps in line with the broader market while growth stocks were in line with value stocks. The Vanguard Mega Cap Growth ETF (MGK), Invesco S&P 500 Equal Weight ETF (RSP), and S&P 500 all closed with a modest loss. The Russell 3000 Growth Index and the Russell 3000 Value Index both closed little changed on the day.

Notably, small caps fared somewhat better than their peers. The Russell 2000 closed with a 0.3% gain.

Energy was the only area of the market with concerted buyer interest. The S&P 500 energy sector closed way ahead of the broader market, up 3.6%. It was boosted by an upside move in WTI crude oil futures ($93.76, +3.13, +3.5%) following reports that suggested OPEC+ is likely to cut production or reduce the rate of its production increase at, or before, its September 5 meeting. 

On the flip side, natural gas futures started the day higher but saw a sharp downside move following an update from Freeport LNG. The company is anticipating its liquefaction facility will be at full capacity by March 2023 with initial production starting mid-November. Natural gas futures settled 5.0% lower at $9.25/mmbtu.

Treasury yields made big downside moves after the weak economic data this morning but did not maintain that downward momentum. The 10-yr note yield, which was at 3.07% before the data, fell to 2.99% but settled the day at 3.05%. The 2-yr note yield was at 3.32% ahead of the reports, but settled at 3.28%.

Economic data tomorrow includes:

  • Weekly MBA Mortgage Applications Index (prior -2.3%) at 7:00 a.m. ET
  • July Durable Orders (consensus 0.6%; prior 1.9%) and Durable Orders, Ex-Transportation (consensus 0.1%; prior 0.3%) at 8:30 a.m. ET
  • July Pending Home Sales ( consensus -3.0%; prior -8.6%) at 10:00 a.m. ET
  • Weekly EIA Crude Oil Inventories (prior -7.056M) at 10:30 a.m. ET

Reviewing today's economic data:

  • New home sales declined 12.6% month-over-month in June to a seasonally adjusted annual rate of 511,000 units (consensus 580,000) from a downwardly revised 585,000 (from 590,000) in June. On a year-over-year basis, new home sales were down 29.6%.
    • The key takeaway from the report is that it reflects the adverse impact of rising mortgage rates and high home prices on overall demand. That impact is evident in the increased supply of new homes for sale, the shrinking percentage of new homes sold for $399,999 or less, and the significant decline in new home sales on a year-over-year basis.
  • The August IHS Markit Manufacturing PMI preliminary reading was 51.3 versus a prior reading of 52.2.
  • The August IHS Markit Services PMI preliminary reading was 44.1 versus the prior reading of 47.3.

Dow Jones Industrial Average: -9.4% YTD
S&P 400: -11.3% YTD
S&P 500: -13.4% YTD
Russell 2000: -14.5% YTD
Nasdaq Composite: -20.9% YTD

WSJ : Saudis, Allies Open Door to Oil-Output Cut to Keep Prices High

Saudis, Allies Open Door to Oil-Output Cut to Keep Prices High
Saudi energy minister’s comments, backed by some OPEC members, are a let down for the White House

Saudi Arabia and some of its oil-producing allies have suggested cutting crude production, disappointing U.S. officials who predicted the kingdom would be instrumental in cooling the market after President Biden met Crown Prince Mohammed bin Salman for the first time in office.

The Saudi-led Organization of the Petroleum Exporting Countries and a coalition of producers led by Russia—collectively known as OPEC+—agreed to a smaller-than-expected production increase earlier in August.

Now, Saudi Arabia’s energy minister and some OPEC officials have suggested the alliance could extract fewer barrels of oil in order to stabilize a market buffeted by economic uncertainty, the risk of global recession and energy sanctions triggered by Ukraine war.

“OPEC+ has the commitment, the flexibility, and the means…to deal with such challenges and provide guidance including cutting production at any time and in different forms,” Saudi Energy Minister Prince Abdulaziz bin Salman said late Monday.

The Saudi state news agency published his comments first made in an interview with Bloomberg.

He described oil markets as “in a state of schizophrenia,” and said Saudi Arabia would soon begin working on a new OPEC+ agreement beyond 2022.

Prince Abdulaziz also maintained a commitment to a yearlong tie-up with Russia that has frustrated U.S. policy makers trying to isolate Moscow because of its invasion of Ukraine.

The comments are the latest indication that Mr. Biden’s July visit to Jeddah didn’t help toward lower prices at U.S. gas stations, and are the opposite of what the Biden administration hoped to achieve during the president’s trip to the kingdom.

Several OPEC members also told The Wall Street Journal on Tuesday that they might back a reduction in output, particularly if a global recession materializes.

The Saudi energy chief’s comments pushed oil prices higher, climbing by $1.3 to around $97.80 a barrel early Tuesday, after a sell off in recent months.

Prices for a barrel of crude are still 17% lower than in early June.

Falling gas prices in the U.S. in recent weeks, spurred in part by recession fears and recurring Chinese lockdowns, have helped Mr. Biden, and any move to reduce oil output could undo those gains.

A production cut also could partly negate any reintroduction of Iranian oil to the market if talks to revive the 2015 nuclear deal, which are at a crucial stage, prove successful.

Sanctions reimposed after the collapse of the agreement have kept Iranian oil largely out of play since 2018, when the U.S. withdrew from the deal. The White House had hoped reinvigorating the arrangement and the addition of Iranian oil would curb prices when Americans vote in midterm elections in November.

The U.S. and its allies have persistently called on oil producers to make up for dwindling supplies caused by sanctions imposed on Russia after it invaded Ukraine. The war sent oil prices above $100 a barrel for the first time in eight years.

The divergent positioning from Washington and Riyadh on global-energy markets points to a deeper disconnect between the world’s biggest oil consumer and its top crude exporter.

The signaling from Riyadh contrasts sharply with the White House’s public and private expectations of the Saudis following Mr. Biden’s high-profile trip to the kingdom, where he met with Prince Mohammed for the first time during his presidency.

Two days after the visit, Amos Hochstein, the State Department’s senior adviser for energy security, said in a TV interview that, “based on what we heard on the trip, I’m pretty confident that we’ll see a few more steps in the coming weeks.”

A week later, a senior administration official said that the White House was “optimistic that there could be some positive announcements coming out of the next OPEC meeting.”

After boosting output by 648,000 barrels a day in July and August, however, the alliance agreed on Aug. 3 to raise its collective production by only 100,000 barrels a day in September.

In response, Mr. Hochstein called on producers to pump more “when possible and to the degree that it is necessary to keep these prices coming down.”

Months of quarreling about the optimal level of oil production has exacerbated frictions between the U.S. and Saudi Arabia, whose relationship hit a historic low in the first year of the Biden administration amid disagreements that also included human rights, the war in Yemen and the Iran nuclear deal.

The president’s trip to Jeddah in mid-July had been aimed at repairing ties and establishing a personal relationship with the crown prince, whom he had vowed to treat as a pariah over the 2018 killing of journalist Jamal Khashoggi. The president greeted the de facto Saudi ruler outside the royal palace with a fistbump and stayed with him for a couple of hours.

Since then, divergent accounts have emerged about what the two sides discussed and agreed to.

The Biden administration received initial indications the Saudis could back an output rise of as much as 500,000 barrels a day at the August meeting, according to Saudi officials. But OPEC+ eventually opted only for a 100,000 barrel a day increase.

State Department spokesman Ned Price said “discussion ensuring a steady supply of global energy…[with America’s partners] will continue, especially as we face an energy situation that has been made all the more acute by Russia’s aggression against Ukraine.”

The U.S.’s National Security Council and the Saudi Energy Ministry didn’t respond to requests for comment.

The Saudis have been dissatisfied with Washington’s focus on the kingdom’s human-rights violations, including the murder of Mr. Khashoggi by men close to Prince Mohammed, and are unhappy with the administration’s insistence on returning to the Iran deal, the Saudi officials said.

Riyadh is also content with the windfall it is seeing since crude prices recovered from a 2020 price war with Russia, and the pandemic. Aramco, the Saudi national oil company, posted a 90% jump in profit in the second quarter, generating billions of dollars in cash that is infusing fresh momentum into the kingdom’s ambitious economic makeover and strengthening its geopolitical power. The result was the highest quarterly net income Aramco had posted since it started trading its shares on the Saudi stock exchange in 2019.

Saudi Arabia registered 11.8% on-the-year economic growth in the second quarter. While the International Monetary Fund predicts growth of 7.6% this year, more-bullish economists forecast a rate of 10%. That higher estimate would make it one of the world’s highest economic performers, as the U.S. and Europe worry about recession.

WSJ : Warner Bros. Axes ‘Batman: Caped Crusader’ and Other Animated Titles From

Warner Bros. Axes ‘Batman: Caped Crusader’ and Other Animated Titles From HBO Max
Warner Bros. Discovery Inc. said it would shop the projects elsewhere amid the company’s streaming overhaul

Warner Bros. Discovery Inc. WBD +0.67% scrapped six animated projects, including the series “Batman: Caped Crusader,” from its coming lineup on HBO Max, a spokesman for the company’s animation studio said Tuesday, continuing the company’s streaming overhaul.

The move was the latest in a series of cost-cutting moves following Discovery’s merger with WarnerMedia, AT&T Inc.’s media business, earlier this year. The company also purged “Batgirl,” a superhero movie with a star-studded cast, from its HBO Max lineup in August.

The spokesman at Warner Bros. Animation Inc. said the projects won’t be available on HBO Max and would instead be shopped elsewhere. The spokesman didn’t say why Warner Bros. Discovery WBD 0.75% chose to axe those titles.

The projects include “The Amazing World of Gumball: The Movie,” produced by Hanna-Barbera Studios Europe, the spokesman said. Warner Bros. Animation is producing the other five titles, the spokesman said. Those projects are “Batman: Caped Crusader,” “Merry Little Batman,” “The Day the Earth Blew Up: A Looney Toons Movie,” “Bye Bye Bunny: A Looney Toons Musical” and “Did I Do That to the Holidays: A Steve Urkel Story.”

“Batman: Caped Crusader,” the latest installment in the Batman universe, had sparked excitement among fans after HBO Max and Cartoon Network gave the show a straight-to-series order last year. WarnerMedia billed the show, which is being produced by J.J. Abrams and others, as a reimagining of the Batman mythology.

Representatives for the show’s producers didn’t immediately return requests for comment Tuesday.

The company’s earlier decision to scrap “Batgirl” came as executives concluded the film was unlikely to make back the money the studio had invested in it after a poor test screening, people familiar with details of the production said at the time.

Warner Bros. Discovery, which formed with about $55 billion in debt, has scrapped a number of titles from HBO Max as part of a strategy overhaul to win streaming market share without overspending.

The company pulled a number of titles in recent weeks from HBO Max, including almost 200 “Sesame Street” episodes and about a half-dozen movies. In May, Warner Bros. Discovery axed “The Wonder Twins,” another superhero movie that cost around $75 million to make. The company’s leadership decided that the movie’s budget was too high to net a return.

Other cost-cutting measures include job cuts. HBO laid off 70 employees this month, or about 14% of its workforce, with the bulk of the layoffs from HBO Max.

WarnerMedia launched HBO Max in 2020. The streaming service became part of Warner Bros. Discovery after the merger earlier this year.

A number of streaming platforms have launched in recent years as companies look to capitalize on the growing number of subscribers migrating from cable TV to streaming services. Platforms including Netflix Inc. , Hulu and HBO Max have struggled to grow their subscriber bases in what has become an increasingly saturated market.

FT : Intel seals $30bn partnership with Brookfield to fund chip factories

Intel seals $30bn partnership with Brookfield to fund chip factories
Plans feed into wider effort to boost manufacturing and regain market share from Samsung and TSMC

Intel has struck a partnership with Brookfield Infrastructure Partners to fund the development of a $30bn semiconductor fabrication plant in Arizona, as the chipmaker works to finance construction on large domestic manufacturing facilities following the approval of landmark semiconductor legislation in the US.

Brookfield is investing $15bn for a 49 per cent stake in Intel’s expansion of its Arizona site, and brings experience in developing infrastructure assets such as transmission lines, data centres and wireless cell towers. Intel, which described the partnership as “a new funding model to the capital-intensive semiconductor industry”, will retain a 51 per cent stake.

“Our agreement with Brookfield is a first for our industry, and we expect it will allow us to increase flexibility while maintaining capacity on our balance sheet to create a more distributed and resilient supply chain,” Intel chief financial officer David Zinsner said.

The expansion is part of a concerted effort by Intel to boost chip manufacturing, as it seeks to take back market share from groups such as TSMC in Taiwan and Samsung in South Korea.

By taking in the Canadian asset management group as a large private capital partner, Intel said the deal would provide it with financial flexibility to continue funding its rising dividend. The partnership is expected to bolster Intel’s free cash flow by $15bn over the next several years, it said.

Intel also said it expected it would be able to “replicate” the new funding model, called the semiconductor co-investment programme, “with other partners for other buildouts globally”.

The tie-up with Brookfield was part of the Intel’s broader effort to tap private capital to finance an aggressive collection of projects in the US, said a source involved in the deal. By sharing the financial burdens to build projects with infrastructure investors like Brookfield or other large players in that field, Intel can lower its overall financing costs and balance sheet risk, said the source, who expected similar structures to be used for upcoming projects.

The announcement comes on the heels of the passage of President Joe Biden’s Chips Act earlier in August, which included $52bn in incentives for the semiconductor industry. Congress is also considering another piece of legislation to establish tax credits for semiconductor investments inside the US.

“This landmark arrangement is an important step forward for Intel’s Smart Capital approach and builds on the momentum from the recent passage of the Chips Act in the US,” Zinsner said.

Intel has two plants under construction at its site in Chandler, Arizona, which are expected to come online in 2024. It announced plans this year to invest $20bn to build two chip factories in Ohio. It also plans to pour $30bn into chip manufacturing in Europe, utilising state subsidies to build a plant in the German city of Magdeburg.

Intel surprised investors last month when it reported a sharp drop in revenues and slashed its outlook for the financial year, attributing the weaker than anticipated performance to supply chain disruptions, worsening economic conditions and pressure from competitors. However, it revised down its annual capital expenditure spending by $4bn, or 15 per cent, in part to account for its partnership with Brookfield.

Intel shares have fallen more than 35 per cent this year. Shares were up 0.7 per cent in trading on Tuesday afternoon. Investment bank Lazard was Intel’s financial adviser, while Skadden provided legal advice. Kirkland & Ellis advised Brookfield.

capital.fr : EDF: minority shareholders put pressure

EDF: minority shareholders put pressure

The minority shareholders of EDF are not letting go in the face of the next takeover bid by the State at 12 euros per share on the 15.9% of the capital that it does not yet possess. If this price represents a premium of 53% compared to the closing price of July 5, the day before the announcement by the Prime Minister of the renationalization project, some consider it insufficient. Reuters revealed today that the Association for the Defense of Minority Shareholders (Adam) had sent a letter to EDF CEO Jean-Bernard Lévy.

The association chaired by Colette Neuville urges the leader to go to court to claim 8.34 billion euros in compensation from the State after the government's decision in January to increase the volumes of nuclear electricity sold at reduced prices to competitors of the group, a measure intended to limit the rise in invoices, indicates the press agency.

"Admittedly, EDF filed an appeal with the Council of State two weeks ago to this effect, but Adam considers that only an action before an administrative court before the filing of the takeover bid with the Autorité des marchés financiers (AMF) would be able to influence the decision of the regulator and that the amount of the estimated damage be taken into account in the valuation of the company”, explains Reuters.

At the same time, the association Energie en actions, which represents employee shareholders and former employees of EDF, told Reuters that it was working hard to sue the State which it accuses of having jeopardized the financial health of the French group.

EDF was listed on the stock market in 2005 at a price of 32 euros per share.