Should Luxury Items Be Considered As Bona Fide Investment Class?
Stocks, real estate, and gold have traditionally been considered as best source of investment. However, today, luxury goods are viewed as viable alternative asset class to diversify one’s portfolio and hedge against inflation. Categories ranging from art to automobiles watches to wine and sneakers to saddle bags are regarded as collectible assets. Relentless pursuit of excellence, long-term commitment, and timelessness make luxury items lifetime possessions rather than just an accessory. Beyond signifying status and fine taste, luxury goods bestow financial independence. Today, Indian luxury buyers who are primarily driven by conspicuous consumption not only invest in luxury goods to showcase their wealth but also to generate handsome returns.
The beginning of 2023 saw an annual hike of around 8-10 per cent across Hermes Birkin and Kelly bags. Last year, the Hermes Himalaya Retourne Kelly 25 bag fetched a record-high price $346,802 for a Sotheby’s auction. In 2017, a Rolex Daytona formerly owned by actor Paul Newman was sold for record high $17.8 million at an auction in New York. The Macallan’s Fine and Rare 60-Year-Old whiskey was sold for about US$1.7 million in 2019.
The question is: Can all luxury items be considered worthwhile investments? What makes them a good store of value?
The good investment aligns with the basic economics of demand and supply. The rarity of these items results in a long waiting period that arouses desirability among buyers. Hand craftsmanship, exclusivity, scarcity, legacy, prestige, limited edition, and know-how are a few reasons that make luxury items so sought-after.
The latest report from Credit Suisse posited that among collectible investments, watches, jewelry and handbags are the safest options. Investment in ‘the big three’ luxury watches- Rolex, Patek Philippe, and Audemars Piguet has outperformed S&P return over the last 5 years from August 2018 to January 2023, as reported by BCG. The average annual return for these watches was 20% while S&P return was 8 per cent during the same time period.
The Wealth Report 2022 by Knight Frank found whisky as the highest-performing luxury investment class, showing a 428 per cent growth over the last 10 years, even more than cars (164 per cent), wine (137 per cent) and watches (108 per cent).
Sneakers is yet another fresh, hottest new alternative for making wealth. It is netting investors 200 per cent in just few days. Don’t be surprised to know that 200 pairs of the limited-edition collection, designed by late Virgil Abloh, raised $25.3 million at Sotheby’s auction.
The robustness of any asset class depends upon market transparency and the ease of liquidating the asset. For instance, the launching of Rolex-backed certified pre-owned program will help owners to gain assurance regarding the authenticity of watches and get clear information on price and worth of the watches. This will generate more confidence among them and will augment the attractiveness of this asset class.
Investing in luxury items requires thorough legwork and extensive knowledge about the item’s past and historical significance. Not all luxury items fetch the same returns, it differs depending upon the model and when it is sold. When buying a luxury item for investment, do remember that what you like to wear (in case of bag or watch) or drive (in case of car) or drink (in case of wine or whiskey), may not always be what sells well. Luxury items may lose its worth based on socio-cultural references, celebrity associations, and brand reputation. This volatility makes luxury investment a risky proposition for individuals who lack a deep understanding of the luxury industry. Therefore, choosing the right item, at the right price, at the right time is the crux of a safe investment.
The author is the Founder and CEO of Luxe Analytics
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