Hermès Birkin, the artistic creations of Jean-Michel Basquiat, Rolex timepieces, or the iconic CHANEL Flap Bag are undeniably some of the prime investments in the luxury market. However, do they still hold their worth in today’s economic landscape, marked by inflation?
Should you invest in luxury fashion amid inflation?
Investing in luxury fashion during an inflationary period prompts contemplation. Items like the Hermès Birkin, the artistic creations of Jean-Michel Basquiat, Rolex timepieces, and the CHANEL Flap Bag have consistently maintained their status as top-tier investments within the realm of luxury goods. Yet, their enduring value amid the current economic conditions remains an intriguing question.
The allure of these exclusive pieces is indisputable. They embody craftsmanship, heritage, and exclusivity, often transcending mere fashion to become works of art and cultural symbols. However, the impact of inflation on the luxury market cannot be ignored.
Inflation erodes the purchasing power of currency over time, leading to rising prices across various asset classes, including luxury goods. For investors, this means that the cost of acquiring or maintaining such items becomes more substantial. Therefore, the question arises: are these high-end fashion investments still worthwhile?
Current situation in America
1. Demand for Luxury Goods
Despite Americans cutting back on spending, the demand for luxury goods remains strong. A study by JP Morgan in the fourth quarter of 2022 revealed a remarkable 7% increase in the luxury goods market compared to the same period in the previous year, even in the face of substantial price hikes.
2. Price Adjustments
In response to lower sales during the Covid-19 pandemic, luxury brands implemented a significant price increase strategy. According to a 2022 study by KPMG International, prices were raised by nearly 17% in 2020 and early 2021, far exceeding the typical 5-10% range.
This pricing adjustment not only bolstered luxury brands but also presented profit opportunities for investors who had previously allocated their resources into these commodities.
3. Success Stories
Gloria H. Gill, a retiree, exemplifies the potential for substantial returns in luxury investments. Her large classic Chanel handbag, purchased for $4,800 in Paris in 2016, has more than doubled in value after approximately 7 years, currently valued at around $10,000 in the market. Her hesitation to sell it demonstrates the perceived enduring value of such items.
4. Hedging Against Inflation
William Huston, founder of Bay Street Capital Holdings, notes that luxury commodities can act as a hedge against inflation when their value appreciates. While they may not outperform the general stock market, they offer stability and potential for growth.
5. Considerations and Risks
Like any investment, luxury goods come with risks. Your capital might earn higher returns in alternative investments, and there are risks associated with loss, damage, or challenges in selling these illiquid assets. It’s essential to assess your financial situation, prioritize an emergency fund, and safeguard retirement savings before considering investments in luxury items.
Invest in Timeless Products
Many luxury buyers and sellers have witnessed a significant boom in their businesses since the pandemic began, and they advocate for investing in luxury items. The advice is to buy high-quality, timeless pieces as they tend to hold their value over time.
Consider factors such as color and material when choosing items. These often make the difference between a timeless luxury item and one that doesn’t appreciate in value over time. Maintaining the condition of your items, especially if you plan to resell them, is also crucial.
Research is essential to ensure you make worthwhile investments. You can access luxury resale websites like Vestiaire Collective, The RealReal, and Rebag to check how items have been rated over time.
Consumers in Asia are starting to favor Vestiaire Collective, a luxury fashion resale website that is currently present in Hong Kong, Singapore, Australia, South Korea, and Japan.
Moreover, you can enhance your investment returns with art pieces.
Many luxury items can be negotiable because, once again, they have lower liquidity and are not easily convertible into cash. So, if you find the right seller with the right item at the right time, you may acquire it at a truly favorable price because they just want to recover some of their money.
Conclusion
In a time of economic uncertainty and inflation, luxury fashion investments continue to hold their appeal. Iconic pieces like Hermès Birkin, Jean-Michel Basquiat’s artworks, Rolex timepieces, and the CHANEL Flap Bag maintain their status as prime investments, offering both aesthetic and financial value. Despite price increases, the American luxury goods market has remained resilient.
However, potential investors should exercise caution, considering their financial stability and a prudent approach to diversification. In this dynamic landscape, the allure of luxury investments persists, offering opportunities for those who tread carefully and wisely.
