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What's a Better Investment? Gold, S&P/ASX 200, Chanel Handbag

By Angus Scutt

May 19, 2020

tiffany-makers-medium-slice-ring-in-sterling-silver

Disclaimer: this article is a collection of publically available information mixed with my own opinion and by no means is intended to be used as investment advice.


Before we start, some definitions:

Gold: A widely used metal that doesn't corrode or rust and is a perfect material for conducting electricity.

S&P/ASX 200: A market capitalisation weighted and float adjusted stock market index of the 200 largest ASX listed companies.

Chanel Flap Bag - Mini Square: a lambskin handbag.



Return

On Wednesday 13 May, Chanel informed the New York Times they would be increasing the price on their handbags and small leather goods worldwide by a range from 5% to 17%. Firstly this a bold statement in the strength of the Chanel brand considering some major retailers are filing for bankruptcy while others have remained on discount during the existing coronavirus pandemic.

Chanel said the price increases in euros ranged between 5% and 17%

Source: New York Times


But secondly this price increase is a larger return than what is typically delivered by the S&P/ASX 200 (average return 5%-7% each year with the recent pandemic actually causing it fall 15.68% in the last year). Gold has held its position as our economic safe zone increasing (43.80% in the last year).


It turns out however the price increases were larger than what Chanel stated.


price-change-year


The 5 bags with the biggest price increases included:

Style Old Price New price Percent Increase
Classic Flap Bag - Mini Square €2,680 €3,350 25%
Classic Flap Bag - Small €4,500 €5,500 20.9%
Reissue Bag - Reissue 224 €4,550 €5,500 20.9%
Classic Flap Bag - Medium €5,150 €6,050 17.5%
Reissue Bag - Reissue 225 €5,150 €6,050 17.5%

Source: Designer Vintage


Of course these figures are referring to brand new bags, but I don't think it's impossible to believe these would have an effect on second hand bags in good condition.


Verdict
First Place: Gold
Second Place: Chanel Handbag
Third Place: S&P/ASX 200



Liquidity

But then how easy is it to sell one of these bags (aka. what is the liquidity of the luxury second hand market)?

According to Boston Consulting Group the luxury second hand market is worth $24 billion and growing at a rate of 12%. This is much faster than the 3% sales growth rate of new luxury goods. Platforms facilitating the second hand sale include invite-only facebook groups, EnterOffer Marketplace, Vestiaire Collective, and StockX.

The secondary market is expected to grow from an estimated $25 billion in revenues in 2018 to around $36 billion in 2021.

Source: Boston Consulting Group


Reselling is also something endorsed by luxury brands. Louis Vuitton Moet Hennessy group had an investment in second hand seller Stadium Goods before it was acquired by Farfetch for USD $250 million cash. The stigma behind second-hand products is declining. A bag that can be resold is more environmentally sustainable and also decreases the financial burden of the initial purchase if the buyer believes it can easily be resold for a reasonable amount.

EnterOffer Marketplace and StockX both aggregate buy and sell offer information. This makes it easier for sellers to ensure they're selling to the highest buying price, and buyers are buying from the lowest selling price.

chanel-boy-bag-offer

Source: EnterOffer Marketplace


By contrast both Gold and the S&P/ASX 200 can easily be purchased on the stock market with no packaging and shipping required.


Verdict
I wish for novelty there was a better argument to be made for Chanel here but until we can virtually send the bags for at-home 3D printing, Gold and ETFs win this one.

Equal First Place: Gold and S&P/ASX 200
Third Place: Chanel Handbag



Conclusion

Gold is typically favoured when there is economic uncertainty which can be seen in the inverse performance difference between itself and the S&P/ASX 200. Chanel however doesn't align with either. They have impressively built a brand whose sales culture doesn't care for pandemics and global economic slowdowns.

I can't say whether it is a good "investment" or not, but the brand's ability to hold worth and sometimes appreciate in value despite the current environment is certainly something worth keeping an eye on.

EnterOffer Marketplace