Invest in a Birkin Bag or Invest in the Stock Market? Something to Think About...

The world of fashion may appear to some as a fluffy, vacuous domain populated by models and fashionistas draped in the latest bizarre creations, but it is a valuable sector – demonstrated this week by the £2.3billion mega-merger of luxury fashion websites Net-a-Porter and Italian giant Yoox.

Combined sales of the two websites is almost £1billion, and the desire to purchase the latest 1970s-inspired designer fringe handbag or bohemian floral cape has fuelled these businesses’ growth.

Dedicated followers of fashion who often spend the average monthly salary on Net-a-Porter items justify their extravagance by calling it an ‘investment’ piece – as do fashion addicts, though they sometimes comfort themselves with the thought that what they are buying is a ‘classic’.

But rather than buying a handbag should a savvy shopper instead invest in the retailers themselves?

Shares in the major luxury brands have soared over the past half decade, and even British upstart Mulberry, whose shares crashed in 2012, is still a top performer if you take a five-year view. Even with Italian brand Prada lacklustre this month – because of the crackdown on lavish spending in China – investors have not been put off the sector.

Rahul Sharma, consumer analyst at Neev Capital, said: ‘In the past five years luxury stocks have done very well. Some are up 15 per cent year on year. Many have tripled in value, though the average handbag has not lasted as well.’

But with clothing re-sale websites springing up around the world, which are doing a roaring trade, is it really better to buy shares in a fashion retailer or its latest ‘it’ bag?

Looking at the returns on some items on websites including Tags On, Vestiaire Collective, Asos-owned Covetique and flash sales website Secretsales.com reveals that well-kept items such as handbags can sometimes be sold for near the purchase price. Some will use the product for a few months before selling it again.

But there are no guaranteed returns from a luxury resale website – it depends on the brand and the product.

Nicola McClafferty, chief executive and co-founder of Covetique, says French brand Hermès has the ‘most key investment pieces’. Some sell at auction for thousands and a Hermès Himalayan Nilo Crocodile Birkin bag with 18c white-gold accessories sold for $185,000 (£125,000) last month. She adds: ‘High resell values in Hermès is driven not just by the highly coveted nature of the brand but also by the fact it is one of the few brands that consistently raises prices annually.’

Requiring a little less outlay could be a bag from Mulberry. The British brand tried to reinvent itself in 2012 and hired Bruno Guillon from Hermès. But after multiple profit warnings, Guillon left last year. Last month it appointed foreign fashion veteran Thierry Andretta as chief executive and hired a new creative director – former Céline accessories design director Johnny Coca – who starts this summer.

Sharma says: ‘I am not overly keen on Mulberry shares but they are doing the right thing now.’ He adds that Hermès is an exception, saying: ‘Many companies have introduced so many different styles that very few of the older items – except perhaps Hermès – have held their value. As investments they don’t compare with investing in actual shares.’

Looking at the stats, Sharma is right. The return on a Burberry trench coat or Louis Vuitton handbag is paltry compared with the rise in share price: LVMH shares have more than doubled and Burberry nearly trebled since the start of 2010. If, five years ago, you’d spent the price of a Louis Vuitton Alma bag on shares, you’d now be able to buy the handbag with the profit.

Shoes might not represent such a good return. Jimmy Choo listed in October at 140p a share: its shoes resell for about 45 per cent but shares are up more than 20 per cent.

But have luxury stocks peaked? Sharma thinks not: ‘The sector is still in good shape and I believe it is still a good investment.’

Laura Levy, luxury research analyst at Barclays, adds: ‘We see luxury as an attractive sector to invest in driven by the emerging market consumer.’

For the shopper who is both fashion conscious and investment savvy, the solution might be to buy shares and shop – Mulberry offers a 20pc discount on up to £5,000 of purchases to investors who have a minimum of 250 shares. So, splash out just north of £2,000 on shares and you can snap up a £995 Bayswater, a £1,200 Cara Delevingne rucksack, a £595 Tessie tote and a £1,600 Willow Tote each year – funds permitting – and save almost £1,000.

http://www.dailymail.co.uk/money/markets/article-3022107/Bag-portfolio-better-buy-classic-fashion-item-shares-retailer.html?