Luxury Series: Where to Invest
Have you ever found yourself in an overseas country and the convo turns to “oh where are you from?”, to which you reply, “I’m from South Africa/ Nigeria/ Kenya [insert country]”.... only to hear “Ohhh Lion King!!” or the even more criminal “Wakanda Forever!”. Now I don’t know what goes through people’s heads when they think we ride to work on giraffes (this convo actually happened to me) or own pet lions but it only takes a quick Google search to realize Africa is one of the fastest growing, powerhouse destinations for luxury goods.
Shopping Malls + High Net Worth Individuals = Plenty of Sales
In 2019 AfrAsia Bank’s Africa Wealth Report estimated the total individual wealth held on the African continent amounts to $2.2 trillion, with around 148,000 HNWIs (High-Net-Worth Individuals). This wealth was expected to rise by 35% over the next nine years, reaching $3 trillion by the end of 2027. That’s a lot of Louis Vuitton!
Apart from leading the HNWI stakes, South Africa also has among the highest concentration of shopping malls per capita globally. It also ranks among the highest levels of shopping centre supply relative to household consumption expenditure. The sustainability of being flooded with shopping malls deserves its own content piece. One thing is for sure, there’s no shortage of retail opportunities, particularly luxury ones.
Although there is an uptick in e-commerce platforms, the physical store experience remains crucial in Africa. Let’s face it, deciding on whether you want the fish or the elephant print on a Ferragamo tie is easier when you’re in the store (the answer is the dog print, always opt for the dog print).
Luxity is Africa’s largest pre-owned authenticated luxury retailer. They’re also really generous in sharing their trend insights and performance stats with BankerX. They saw double digit growth across the lock-down which is fascinating to unpack. One element of the uptick in demand stems from consumers being more selective about their purchases. The pre-owned market is also less sensitive towards overall market conditions and has a bit more price stability. Another useful insight is the increase in the number of cash strapped luxury item owners selling their items to free up some liquidity. Consequently, the pre-owned market across the last few months has seen strong long term luxury investment assets being priced at very steep discounts.
The South African demand base for luxury goods currently consists of a small base of wealthy South Africans and foreign visitors. Luxury brands are rolling the dice on the growing middle class and hoping they translate to brand loyal clients. The competitive environment remains highly fragmented.
Overall, the top five performing bands in South Africa, based on a combination of factors were, Louis Vuitton, Christian Louboutin, Gucci, Chanel, and Hermès. Safe to say if you don’t receive a LV, your partner doesn’t LoVe you (this does not constitute relationship advice).
The value of a Birkin has gone 500% across the last 35 years translating to roughly 14% per year. In fact – Birkins outperform the stock market nearly every single year.
Are there strong pockets of value across other major luxury brands? Enter Chanel!
Arguably, still one of the best investment luxury bags is the Chanel Medium Classic Flap. It’s the gold standard.
Chanel’s retail asking price far outperforms inflation in ZAR terms, seeing a 21.2% increase year-on-year (YoY). The pre-owned resale price bumped up slightly softer by 17.7% YoY.
While we’re on gold standards, here’s how the Chanel Medium Classic Flap stacks up against gold returns as at end 2020.
Blue-chip luxury items in your portfolio could ensure you stay in your… bag. As for the return on resale value, the contenders in the handbag sector changed slightly in the last twelve months, with Louis Vuitton regaining it’s royalty status, Christian Louboutin makes its first appearance in the top three and Chanel drops to third place.
This means, on average, a Louis Vuitton, Chanel or Hermès bag is likely to retain over 60% its value on resale.
Within the shoe segment Hermès takes top spot, due to its general unavailability in the domestic market. Tom Ford placed as the second-best resale shoe and knocked Christian Louboutin down to third place.
Within accessories, Christian Louboutin claims first place with an average 68% resale value. Overall, you’re still winning if you own an Hermès scarf, despite another slight decrease in the resale value of 1%.
With the increased supply of stock across all the brands there are marked variations between the minimum and maximum resale values. These differences are due to a number of reasons but usually related to the condition of the item.
After a drop in the mean resale value of most brands from 2018 to 2019, many were up again in 2020, such as Chanel, Hermès, Louis Vuitton and Bottega Veneta.
While Christian Louboutin’s resale value has been very consistent over the last three years, both Fendi and Burberry are the only brands where the resale value has increased every year.
Burberry is one of the brands that have attracted the millennial market, eager to get into the luxury market. This is in line with the younger brand repositioning of Burberry driving renewed interest in the brand. Luxity did some work in carving up luxury brand data across age groups and major cities. One trend is that Generation X buyers predominantly still gravitate towards popular brands such as Louis Vuitton, Chanel, Gucci, and Hermès. With Louis Vuitton remaining the favourite in Johannesburg, while Chanel leads the way in Cape Town. The demand for Fendi is also heavily driven by Cape Town buyers.
Louis Vuitton remains the most searched for item across Luxity’s list of potential buyers with the top four brands being vastly more popular in terms of searches than the remaining six.
Being able to pick out trends early on can make investments incredibly lucrative over the long-run. More importantly, not all luxury assets are created equally. Art, wine and luxury bags all have different price drivers and exhibit different returns profiles over time. Technology also plays a massive role in determining value. Digital art, especially through NFTs (Non-Fungible Tokens) have introduced a completely new element to art as an asset class.
The great news is with the democratization of access to luxury assets, you won’t have to starve to gain exposure into this pool of wealth assets. The future lies in fractional ownership of luxury goods where a large group of investors are able to collectively buy-up stakes in a highly sought after item and benefit from the capital growth. Watch this space!
Traditional personal finance advice preaches investing in stocks, commodities and saving cash away - the world is much bigger than a narrow, defined universe to generate strong returns.
More importantly, many alternative assets provide diversification and they aren’t tied to the fate of stock markets. It’s a window into how the wealthy stay wealthy, through luxury assets, alternative investments and little secret pockets of growth we often don’t know about.
It’s time we secured the bag ourselves.