Just released: Our latest Sports Collectibles Market Report!
From horse harnesses and bridles to one of the world's top luxury design houses, Hermès has established itself not only as one of the leading producers of high-end merchandise, but also an asset with historical appreciation. Founded more than 185 years ago in 1837, Thierry Hermès developed award winning horse and carriage products that targeting the richest European noblemen which offered the first example of Hermès as a brand built for a specific audience. Throughout the late 19th century and into the 20th century, Hermès expanded its operations globally and was serving an elite client base through Asia, Europe, and the Americas. There was one growing challenge facing a company that had built its business around horse-related travel accessories though - horse-related travel was about to decline dramatically. Despite increased market risk to their legacy brand, Hermès ran ahead of the changing times and quickly broadened their offerings to various clothing collections. The early 20th century brought continued growth but it was the 1920s-1950s that would prove to be a metamorphic period for a brand that had already established itself as a premier marketplace.
While the brand has curated an extensive lineup of products, the most recognized item produced by Hermès are their iconic handbags. In 1922, Émile-Maurice, then president of the Hermès Company, introduced the first leather handbags that would ultimately become the bellwether for the luxury brand. Throughout the Gilded Age, Hermès continued to grow its presence in the United States and Europe with the aid and influence of the world's best designers. Hermès entered the watch world in the 1930s after hiring the Swiss timepiece powerhouse Universal Genève to produce their initial line of men's chronographs but handbags would become their predominant business before the decade was over. In 1935, Hermès lauched their first edition of a Sac à dépêches bag. While the luxury goods market stalled due to financial crashes and World War II, by the time the fighting ceased in the 1940s, Hermès had developed multiple new product lines and was becoming a recognized brand worn by the elite throughout major cities around the world.
The 1950s introduced a branding shift for Hermès that coincided with an additional emphasis on their handbag sales. Shaping the company's image was the painting Le Duc attelé by the late French artist Alfred de Dreux which is still the basis for the primary logo of Hermès today. The logo was not the only change as even their colors were receiving a makeover. Continuing a trend that had started during World War II due to a shortage of cream-coloured boxes, Hermès used warm citrus orange packaging to draw additional attention to their products and the look has now become a staple for the brand and additional symbol of luxury.
Simultaneously, Hermès was in the spotlight as the biggest names in culture and politics were flashing the company's growing assortment of products. In 1956, actress turned Princess of Monaco, Grace Kelly was photographed carrying a Sac à dépêches. The image was published on the cover of Life Magazine and the hysteria and demand for the bags became so significant that Hermès would later rename the Sac à dépêches as simply the Kelly.
The opportunity for Hermès within the United States was expanding and with it came a boom in both attention and sales. In 1958, Hermès released a bag know as the Trim and it became a favorite of First Lady Jacqueline Kennedy which led to retailers selling out months in advance of similarly designed handbags, purses, and accessories. The 1950s and 1960s provided a boost for the entire luxury market as consumerism within the United States exploded and the proportion of the population within the upper-middle class swelled. Working as a designer for Hermès also became a success symbol and the brand trains and promotes craftsmen internally through a lengthy process that takes at least five years. The artisans who work with more intricate materials like crocodile and ostrich have to complete additional workshops and can be mentored for more than a decade to master the techniques required to fabricate the world's most luxurious handmade handbags.
With growing demand for handbags, the most influential of all the Hermès fashion accessories was introduced in 1981 when the company launched a line of products known as the Birkin. Named after the British actress Jane Birkin, the leather bags would rise in popularity in the 1990s before becoming the ultimate status symbol of luxury by the 2000s. The Birkin attracted attention within pop culture, from music to television, and even became a featured element on the show Sex in the City with multiple episodes based around trying to either acquire a bag or showing-off the popular fashion piece.
In recent years, celebrities have flocked to Hermès as the brand now consistently commands six-figure prices for their high-end bags. In 2008, soccer star David Beckham bought a Himalayan Birkin for his wife that carried a sales tag upwards $100,000. Even the standard leather bags started to command six-figure sales and by 2017, the public record for any Hermès leather bag was $109,500, when Christie's sold a Metallic Bronze Chèvre Leather Birkin 25 at their holiday luxury auction in Paris. Today, the leather bag record stands at $136,490 after Sotheby's sold a Metallic Birkin on April 29, 2022.
At the top of the market, no Birkin has consistently hit price figures as high as the Himalaya. In 2017, Christie's sold a white Himalaya crocodile diamond Birkin for $84,285, which made it the most expensive handbag ever sold at auction. The Birkin, which was made exclusively from white or albino Nile crocodiles, contained more than 240 diamonds and carried an 18-carat-gold hardware. Even in smaller sizes, the Birkin hits sales figures that are almost incomprehensible. Last year, Sotheby's sold a 25cm Himalaya Birkin for $300,000 and while prices can fluctuate dramatically depending on various condition factors, the secondary market price for both 25cm and 30cm Birkin bags has increased by at least 10% annually since 2000. The average auction price over the last five years for a 30cm Himalaya is $146,500 but appreciation has continued throughout 2022 and in April, Sotheby's sold one example for $208,750. The private markets are even more impressive as supply struggles to meet demand. Earlier this year, Sotheby's brokered a private transaction for a Diamond Himalaya Birkin 30 for a price that exceeded $440,000.
Until the turn of the century, the resale market for Birkin and Kelly bags had been limited due to a lack of accessible technology and marketplaces. In 2001, Hermès became one of the first luxury brands to launch an online e-commerce site and the early embrace of technology would allow for a new era of Hermès to take flight and in the future, allow the company to survive unforeseen risks. In the early years of e-commence, Hermès strayed away from committing significant resources to an online shop as the experience of going into a brick and mortar store was considered a selling point. The hesitancy towards online retail shifted in 2020 with the onset of Covid-19 and while profits plummeted, down 55% year over year between 2019-2020, online purchases increased by more than 100% across Asia and the Americas. Today, it is estimated that Hermès sells nearly 45% of all merchandise through their online channels and as the company has slowed the opened of additional physical stores, which means that percent is expected to grow throughout the next decade. Hermès has also launched new bags including their breakout 2019 design known as the Faubourg Birkin.
With colorful awnings that feature the brand's signature orange and hardware made from shiny palladium, even 20cm examples of the Sellier model have reached $240,000 at auction in their first three years of existence.
There are standard risks surrounding the Hermès market that can be found within any alternative asset market, and then, there are risks that are specific to Hermès. As with any investment, past performance is never indicative of future results and while the resale value for Birkin bags has continued to skyrocket and the brand is still seeing record revenues, there are unforeseen costs that eat away at financial returns. The price of a resale Birkin varies significantly depending on condition which means proper storage is crucial if a collectors wants to have any chance of realizing an annualized rate of return of 14%. Additionally, the Birkin would likely need to carry full insurance since in some cases, the bag alone is worth more than a car. There is an unknown when it comes to the production totals of birkins which adds the mystery of total float available on the market. For an asset that relies heavily on scarcity, there is also the threat of either overproduction or the auction sale of counterfeit bags. In a recent letter, the CEO of Hermès estimated that 80% of the secondary Birkin market is counterfeit which can be damaging for someone who owns a real Birkin as the actual rarity of the market might not be truly realized.
Additionally, Hermès has not been immune to criticism, especially from animal rights activists. The luxury brand has been one of the primary targets for the leading animal rights organization PETA and the contention reaching a boiling point in 2015 when Jane Birkin, the namesake to the Birkin bag, filed a formal request to have her name removed from the handbags due to the treatment of crocodiles at a farm in Texas. The differences were ultimately settled after an internal investigation by Hermès and Jane agreed to allow the bags to continue carrying her last name. The battle between PETA and Hermès has raged on though, with PETA launching an undercover investigation into multiple crocodile and ostrich farms to secretly film the conditions and slaughter process that is completed in order to produce some of the top selling Hermès products. While Hermès could pivot away from animal-based products in the future, the growing distaste for the Birkin bag manufacturing process could lead to a decline in appreciation for bags that are already made of materials from animals.
Enjoyed this article? Don't forget to subscribe to our newsletter to receive more like it in your inbox weekly!
Disclaimer: You understand that by reading Altan Insights, you are not receiving financial advice. No content published here constitutes a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, transaction, or investment strategy. You alone are solely responsible for determining whether an investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal financial situation. Please speak with a financial advisor to understand if the risks inherent in trading are appropriate for you. Trade at your own risk.
