Handbags at Dawn: Why Auction Houses Are Targeting Luxury Fashion

The world’s biggest auction houses are targeting luxury fashion. The result? Record-breaking Birkins, auctions during fashion week and a $60 million lawsuit.

A Christie's luxury accessories auction | Source: Christie's 

 

LONDON, United Kingdom — On Monday, a handbag shattered a world record. The bag in question, a fuchsia pink crocodile skin Hermès Birkin with 18 karat gold and diamond hardware, sold for HK$1.72 million ($223,000) at an auction held by Christie’s in Hong Kong. The winning bid, from an unidentified buyer, smashed the previous record for a handbag sold at auction, set at Christie’s New York in 2011, when a purse once owned by Elizabeth Taylor went for $218,500.

The market for second-hand luxury fashion has attracted a flurry of digital upstarts, such as The Real Real and Vestiaire Collective. But now, the world’s biggest auction houses are targeting the opportunity.

At the end of last year, Christie’s launched a live auction calendar dedicated to handbags and accessories, off the back of the success of its inaugural live handbag sale last March, which realised €2.5 million (about $2.7 million) in sales. Next month in Paris, Sotheby’s — Christie’s biggest competitor — will host its first auction of haute couture fashion.

“Sotheby’s and Christie’s are working to expand their brand,” said Jeff Rabin, principal and co-founder of art advisory firm Artvest Partners LLC. “Luxury fashion seems to be a natural extension of art, which is the ultimate luxury item.”

Meanwhile, Dallas-based Heritage Auctions, America’s largest collectibles auctioneer, launched its luxury accessories business back in 2010, which has since grown by more than 50 percent a year. “It’s expanded at such an incredible rate,” said Max Brownawell, consignment director and specialist for luxury accessories at Heritage Auctions’ New York office.

The auctioning of fashion accessories first kicked off in a big way around 2000, when seasonal ‘it-bags’ took off and collections such as Louis Vuitton’s 2001 ‘Original Graffiti’ bags sold out, sparking interest from second-hand buyers. The global financial crisis somewhat dampened the category, as clients fell back on classic, safe styles that held their value. But, post-recession, bag collectors are back. “They're after the rarities,” explained Matt Rubinger, international head of the handbags and accessories department at Christie’s. “They've already purchased the classic piece and they're ready for something a little more exciting.”

“It's gotten to a point where people are just starting to shift from shoppers to collectors,” said Rubinger, who compares the emerging market for luxury handbags to “where the secondary market for watches was thirty years ago.”

At auction, handbags dominate the luxury accessories category. And the handbag category is dominated, overwhelmingly, by one brand: Hermès. At Heritage Auctions’ biggest ever auction, held in May, of the 950 total lots, over 600 were Hermès items. Of those 600 items, 400 were Hermès handbags. Hermès makes up about 90 percent of Heritage's luxury accessory category’s business, according to Brownawell. Noteworthy lots sold by the auctioneer have included a black Kelly bag that went for $125,000 in December and a brilliant red crocodile Birkin that went for a record $203,500 in 2011.

“If you asked me what the top five purse brands are, I would tell you that Hermès is number one, number two and number three,” said Greg Rohan, president of Heritage Auctions. “It’s about the craftsmanship of the product, the desirability of the product and the scarcity of the product.”

Hermès is a hit on the resale market for three reasons. Firstly, there is far more demand for Hermès purses than there is supply. Secondly, the bags are hard to get hold of. The waiting lists to buy are years-long and the most exclusive styles are only offered to VIP clients, which drives up the resale value far beyond Hermès’ asking price. Thirdly, they are widely imitated — if you’re spending that much on an item, you want to be sure it’s not a fake. An established auction house offers that guarantee.

Other auction favourites include Louis Vuitton and Chanel, though according to Brownawell, Chanel bags “lose 40 percent of their value” as soon as they’re out of the shop door. Phoebe Philo’s designs at Céline hold their worth on the second-hand market, in part, because Céline has no online distribution network, which makes its products relatively hard to come by.

But where do auctioneers source their handbags?

Many come from collectors who are curating their collections, but others are from Hermès’ clients, who resell the bags they don’t want — and keep buying from Hermès until they get the one they do. “If you're offered one of the bags that’s only available to VIP clients and you turn it down, you probably won't be offered any others,” explained Brownawell.

With a strong supply of auction-worthy product flowing in, and sale prices way above estimates, luxury fashion may seem a straightforward business boost for auctioneers. But behind the Birkins, there’s a war going on.

On a Monday morning in May of last year, Greg Rohan received a call from Matt Rubinger, who at the time was 26 and working under Rohan at Heritage Auctions. Rohan had plucked Rubinger straight out of Vanderbilt University (where he had set up a business buying and selling Birkins out of his student room) to launch Heritage’s luxury accessories category, the first time that an auction house had made it a standalone category. According to Reuters, Rubringer was earning $340,000 in salary and bonuses at Heritage.

Over the phone that morning, Rubinger told Rohan that he was leaving the company for Christie’s, where, it later emerged, he was to head up a new luxury accessories department in Hong Kong. Within an hour, Rachel Koffsky and Caitlin Donovan, who, along with Rubinger, comprised Heritage’s entire luxury accessories management team, had also resigned to decamp to Christie’s. It was the Hong Kong-based department helmed by this trio of twenty-somethings that broke the world record for a handbag sold at auction earlier this week.

Heritage is now seeking over $60 million in damages from Christie’s and the three former employees, who it alleges breached their “duty of loyalty” to Heritage and stole trade secrets. The suit also seeks all profits from Christie’s luxury accessories division through 2016.

As the talent wars prove, the world’s biggest auctioneers see luxury accessories as a big business opportunity. But, when compared to categories like art or watches, how big could the fashion business be?

A $223,000 Birkin bag is a drop in the ocean compared to the top prices reached at art auctions. Last month, Christie’s sold over $1 billion of postwar and contemporary art at auction in a single week, the trophy sale being a Picasso painting that went for $179 million. Jewellery, too, far outshines handbag sales. Sales at Sotheby’s Magnificent Jewels Geneva auction, also in May, hit $160.9 million.

According to Jeff Rabin of Artvest (which advised on Citibank’s coverage of Sotheby’s stock) these phenomenal sale prices for art pieces, while headline-grabbing, are “not necessarily so profitable.” The reason being, to gain the prestige of selling these trophy lots, the auctioneers take on the major expenses of carrying the works — hosting private showings, travel costs, additional security — and cut deals that may not be profitable. “Without question, the auction houses are not charging the seller anything to sell these magnificent works of art,” said Rabin.

Luxury fashion, on the other hand, is a steadier bet. Handbags come under what Rabin terms “lower-end property,” which caps at a few hundred thousand dollars. “That is very valuable property from a business perspective, because they are earning full commission on both the buy side and the sell side,” he said. “That’s their bread and butter business. So going into another category where they can do sale after sale of property in this price range is simply good business.”

At Heritage, where the luxury accessories department brings in about $15 million of the company’s $900 million in annual sales, “our watch department does a little bit less [than luxury accessories] and our jewellery department does a little bit more,” according to Brownawell. “In the next five years we're hoping to grow [luxury accessories] substantially. Where we're really hoping to grow is in our private sales business. That's a business where we do a couple million a year.”

Fashion items are also a strategic tool for engaging top clients across different categories. At Christie’s first luxury accessories auction in Hong Kong last year, the largest crossover category from existing clients was with Asian contemporary art.

“You can't always pick up the phone and call a client you haven't spoken to in 15 years and offer them a $30 million painting, but you can with handbags,” said Rubinger. “It's quite small next to something like post-war, which does almost half of the business for Christie's, but it's a good and important strategic tool. And on top of that, it's profitable.”

“Someone who has the resources to buy $100,000 dollar purses, they are generally also collecting jewellery, collecting watches, the husband may be collecting wine, art,” said Rohan. “The purse collector is one of the best demographics there is.”

Though, according to Rubinger, “there's nothing quite like the excitement of a live Christie's sale,” much of the handbag auction business is conducted online. At Heritage Auctions, online makes up the majority of the category’s sales.

Christie’s — where Net-a-Porter’s Jeremy Langmead spent a year as chief content officer — launched luxury handbags as an online-only sales department in 2012 and has recently made a big push into digital, investing $50 million over three years into developing its digital  auction platform.

Going forward, auction houses are looking to further cement the links between the worlds of art and luxury fashion.

“I and a lot of other people consider the beautifully handmade Hermes purses to be works of art,” said Rohan. “When you have something that takes so long to make, that is made by artisan craftsmen, each one lovingly assembled and many of them have in production for many years — I think that they are works of art.”

Christie’s is owned by French art collector François Pinault, who is also the majority shareholder of the luxury conglomerate Kering. In May, the auctioneer’s luxury accessories department relocated to Paris, where it will sync its biannual sales to the fashion week, a move the company said would bring it closer to the “epicentre of the market for fashion.”

Also in Paris, in July, Sotheby’s will host its first haute couture auction, comprising 150 items selected by Parisian collector and boutique owner Didier Ludot.

“I make a huge differentiation between handbags and second-hand vintage accessories — and haute couture, which represents French heritage and the skills of France’s haute couture craftsmen,” said Ludot. Nonetheless, some of the same winds are blowing across the markets for vintage clothing and accessories — for one, the increased resale value of new items at auction. “The biggest change is that, before, people bought and collected very “antique” pieces from 1900 to 1970. Now, every season the best pieces are spotted,” he said.