With the crashes of the housing industry and stock market in 2008, and with interest rates long near zero, many people are looking at alternative options for safe investments.
Surprisingly, luxury brands such as Hermès and Chanel have arguably become a safer investment than stock markets. For example, Hermès scarves that are kept in pristine condition often command a 200-percent increase in value over only a few years. A Hermès scarf’s value improvement is influenced by the designer, colorway, and pattern.
Similarly, this is true about luxury brands’ handbags. There are styles designed by famous artists, comprised of difficult to source materials, and likely hand-made by highly skilled craftsmen whose skills are passed down from one generation to another. These contents items are considered wearable art, and each design and colorway is only made for a limited time. Because of this, many items not only have a retail value, but also a collectable value that can influence the piece’s overall worth.
Couple this element of uniqueness with buying trends, and you will quickly see how education on luxury handbags is becoming critical for property claims professionals and high-end insurers.
According to Bain and Company, in 2016, the total global spend in the luxury industry was approximately $1.2 trillion, with luxury personal goods accounting for $288 billion of that. In 2016, the spend on luxury handbags grew more than any other category. Further, according to Coach CEO Victor Luis, in the third quarter of 2016, 55 percent of all handbag sales were for bags that cost more than $400. Luxury handbags are becoming more prevalent, and they are no longer only on the arms of the one percent.
Interestingly, buying trends also indicate that women are not spending money on handbags impulsively. The NPD group reports that millennial women are now treating the purchase of a handbag similarly to that of an automobile, with 41 percent of buyers researching the purchase of a handbag for longer than 30 days prior to completing the sale. There is a robust market for luxury handbags, and savvy shoppers are scouring the web for the best available price. Often, these searches end with the purchase of a previously owned luxury bag.
The appeal of previously owned luxury handbags is at an all-time high. As more individuals spend less time in brick and mortar stores and more time online, previously owned handbags can be purchased in the privacy of one’s own home with no one ever knowing that it wasn’t purchased brand new or at a fraction of the cost of a new one. In retail stores, brands such as Louis Vuitton, Chanel, and Hermès are never discounted. So, a savvy shopper is able to get a remarkable deal if she does her homework and buys an authentic bag in good condition. This is evidenced by the recent explosion of sites that sell authenticated secondhand luxury purses.
Additionally, “entry-level” luxury retailers are intentionally reducing variety by producing 23 percent fewer new styles per year. This is creating a variety vacuum that the resale market is filling. Many luxury bags have a lifespan of 20 years or more, due to the quality and construction. Therefore, previously owned luxury bags give the buyer 20 years’ worth of styles from which to choose. This means that there are many different available styles on the market at a variety of price ranges, all entirely authentic.
When a claim arises, however, the question becomes “Should an insurer then be responsible to pay a client who bought a 15-year-old secondhand purse for the full replacement cost value of a brand-new luxury bag?” After all, there are plenty of bags in similar condition to the originally purchased product, and the difference in replacement value can be thousands of dollars.
This scenario I just described presents an easy opportunity for soft fraud in which an insured overstates the values of fire-damaged items. According to the Insurance Information Institute, soft fraud costs insurers $32 billion per year.
Claims professionals who are informed and set firm and clear expectations with their insureds from the beginning have better luck in settling claims quickly. They also have happier customers after the claim is closed. Those who let the insureds call the shots from the beginning often have real struggles that result in lawsuits. Therefore, with the complexities of this particular niche, it pays to be as knowledgeable as possible on the important factors that determine restoration versus replacement, as well as establishing the piece’s real value.
Can It Be Saved?
Traditional restoration methods for durable goods involve removal of soot and odor through treatments that utilize chemical gasses, solvents, and cleaners. Luxury purses are difficult to restore because they can be made with delicate materials and hand-painted with artisanal dyes, making it easily damaged by common solvents and cleaners. Gold plating can be permanently damaged if not cleaned immediately and correctly, which devalues the purse by 20-30 percent. Alcohol-based cleaners strip color off painted leather, which could completely ruin a handbag.
Additionally, handbags made by the best brands often use natural, gently dyed leather for handles, trim, and straps so that the leather tans beautifully over time, rather than painting the leather trim with leather color as is done with lower quality bags. If this natural leather is cleaned with water- or oil-based products, then it will soak up the cleansing agent, leaving water stains that will devalue the purse by up to 50 percent of its original value. For this reason, insurance companies should ensure that they have professional resources skilled in the proper care of luxury goods.
Hermès, Louis Vuitton, and others advertise “rehab” programs for their purses. However, when there is staining or damage to the purse, there is no quick fix. Therefore, successful restoration usually requires the removal and replacement of whole panels of leather. This sometimes makes the process of restoration impossible or cost prohibitive. Therefore, it’s important to know the real value of these purses, as they will likely have to be replaced.
How Is Value Determined?
Because every bag is different, insurance claims professionals should seek out resources that are knowledgeable with luxury goods. That being said, there are common features that an appraiser or authenticator will consider.
Designer. The bag’s designer is very important when it comes to assessing value. For instance, Gucci and Yves Saint Laurent bags designed by Tom Ford are considered iconic. Because of their intense popularity, they also were the easiest to purchase and a big target for counterfeiters. For the reason that his designs lack scarcity, Ford’s designs tend to be less valuable than older, less famous items from these fashion houses.
Materials. The materials that make up a handbag also are a major factor in determining value. For example, a Hermès Birkin bag made of Togo leather retails for around $13,500, while a Hermès Birkin bag made with matte niloticus crocodile skins may fetch upwards of $90,000.
Condition. Factors that devalue a handbag are straightforward, and all play a role in assessing the bag’s value. Key factors include the following:
• Staining inside or outside of the bag.
• The condition of the leather, in terms of cracks and stains.
• The condition of gold plating on hardware.
• Damage to the edges and bottom corners of the bag.
• The presence or absence of certain hardware, like locks, keys, or straps. Often, the presence of removable shoulder straps can increase the value of a bag by several hundred dollars. The absence of the original lock and key on bags may decrease the value by 15 percent or more.
How can you establish the value of a secondhand purse? Serial numbers can give you an idea of age, and most retailers keep logs of the original owner of the bag using this number. Also, there are authenticators who can research the design, size, and detailing of the bag and give you an idea of the bag’s age and rarity. Remember that even badly damaged bags show signs of their pre-loss condition, too. Lastly, with negotiations on all bags, the first question to an insured should be “Did you purchase the bag from a retailer or was it pre-owned?”
Faux Pas
How is authenticity determined? After all, excellent fakes are everywhere. Here are a few general tips.
Be sure to pay attention to the stitching. Luxury brands most often are hand-stitched, and leather is hand-punched. When comparing hand-stitching versus machine-stitching, the thread tension looks different, and the quality of holes punched into the leather at each stitch looks different than when done by machine. With authentic bags, there won’t be loose stitches or thread endings visible at the corners, and you will never see damage around the stitches where the needle drags against the material.
For many top brands, the hardware is logoed. While the absence of logoed hardware confirms a fake, the presence of logos will not always mean the bag is authentic. The logos have to be consistent with those that are produced by the fashion house itself, so further research is needed to confirm.
The interior of fine bags demand attention, and will always consist of quality materials. The bags will always be lined, and always well-anchored in the corners. Labels will be stitched down, never attached with glue.
Lastly, patterns of leather or fabric for authentic purses are carefully selected with attention to detail regarding how the leather is centered on the body of the purse. For instance, the classic Louis Vuitton logo bags will never have a logo clipped or broken along the edges, and the pattern will always match up uniformly across seam breaks.
Additional Considerations
Resale potential is a viable option for most designer handbags, and should not be overlooked by insurance companies as an opportunity to recoup part of their losses on the cost of replacement. Twenty-year-old luxury bags may still hold their value of what was paid for the bag originally, and if a bag is no longer in pre-loss condition but is still in good-to-fair condition, it is well worth finding an authenticator to assess the value and put it on the resale market.
When choosing a restoration company or any company where these items are shipped for authentication, ask about the organization’s bailee coverage limits. Be on the lookout for companies with per item replacement value of $10,000/item rather than the more common $4,000/item max payout.