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Chanel 2.55 vs. Warren Buffett – an update

Sep 092011

One of the most popular posts I’ve written for Feather Factor (and a personal fave) is one where I compared the prices of Chanel’s iconic 2.55 bag vs. the stock prices of various securities. At the time, I was faced with what I considered monstrously high price for a new Chanel bag vs. what I’d previously paid in 2002, and was wondering how the prices of the bag had risen over time. Had it outperformed the general stock market? Should I have followed my instincts back in college and used all my savings to stockpile classic Chanel bags at their $1k price tag, like Elaine and the Sponge on Seinfeld?

Okay, sorry about that – I am a shameless Seinfeld quoter. But anyway, since that post in 2010, a lot has happened in a year – mainly, the US has had a slow, turtle like “recovery” (well that’s debatable) and Chanel has decided to raise prices, yet again. So I decided to do an update for you all…and added in Goldman Sachs as a security as well (just a little shout out to all the women in finance who read this blog….apparently there’s a lot of you!)

Without further ado, an update to my 2.55 vs. Warren Buffet chart – please see below for notes and details:

This chart assumes a $1k investment made in each security as of the beginning of 2004 (Google IPO’d later in ’04), and charts the performance thereafter based on retail price. The conclusions are pretty similar to what I showed in 2010 – the only stock that outperformed Chanel bag prices was Google, and gold by a slim margin. Warren Buffet’s Class A wasn’t even close.

My original conclusions from last year:

Chanel has been insatiably greedy over the past few years, riding the luxury wave to the mass market (highly likely)
If you want to buy a 2.55 now, you can either view it as buying at an unjustifiably high price, and perhaps hope that another 8 years from now the price will have tripled again (to a healthy $10,200).

I think those two points above still probably ring true. I’d like to add a a few more of my own conclusions here.

First is the fact that luxury cannot continue at this pace forever. Sorry, no. China, the biggest area of growth of luxury firms, is doing fantastic (and high five to my comrades) but its growth will slow and more domestic players will enter. These luxury companies that have so far had the basic China strategy of, “Be a foreign firm. Enter Chinese market. Sell whatever we want and price at whatever we want,” will face stiffer domestic competition and resistance to these price hikes. Well…I really hope so, anyway.

Second is of course that luxury and fashion items are in my opinion, not an investment. They are highly illiquid and you can’t live in them, or put them in your Roth IRAs. When the bad Terminators arrive and the machines take over, we will not be patting ourselves on the back, having invested smartly in Cartier Love bracelets. Ultimately, you should choose what to dangle over your shoulder, or drape over your shoulders, not by if you think you’ll make a profit, but by what speaks to you and is hopefully, affordable to you. Beauty and luxury have their own personal price tag…and in the end it’s up to you to figure out what that price is

So go forth, shop, and enjoy…but stay educated, friends! Actually I have just heard that Chanel will be raising prices again soon – maybe I need to be doing a revision of this every year. I would love to hear comments and feedback on this topic…and of course, have a fabulous weekend!

The Chanel 2.55 vs. Warren Buffett

Feb 052011

image via Bagsnob

So there’s been a ton posted, advertised and written already about the Chanel 2.55 flap bag- the medium/large classic flap that typically comes in caviar and lambskin leathers. Chanel manufacturers the bag every year- it’s a true classic.

I bought my first caviar flap in 2002- it was one of my first designer bags and was a little over $1k from the NYC Madison Ave store, which was a hugely princely sum at the time. I put it on a chair next to my bed and looked at it before I went to sleep. Don’t ask why.

Now it’s almost a decade later and as I hadn’t visited my friend Chanel in a while, decided to pop into a local boutique a take a look at some of their new offerings, including my old friend the caviar 2.55. And the price nearly bowled me over -$3400 (and this before California’s egregious 9.5% sales tax?) That is more than triple what I bought it for!

Since my first purchase in 2002 though, I’ve spent some time working in finance, and know that the prices of goods rise over time, naturally of course – so I thought, could that be the culprit? To find out, I decided to plot the price of the 2.55 Chanel against some very well known stocks to see if price increases were in line with the performance of some of the US’s most famous companies:

- Chanel 2.55 Caviar Medium/Large flap vs:

- Ford
- Berkshire Hathaway (Class A)
- Google
- Dow Jones Industrial Average (DJIA)

I used the selling price for each of these as of January 1st of each year, with the exception of Google, which didn’t IPO until mid 2004. I mapped out the % return each year, and then for graphical purposes displayed the rise in each entity’s price given a $1000 investment (if this doesn’t give you an idea of the dark side of my nerdy social life, then…)

The following is the result —

Shocking eh?? Until 2009 the 2.55 flap was far outperforming them all, and only Google managed to eke out a relative advantage. The 2.55′s price has increased far more than Warren Buffet has been able to return to his investors in the same period. A quick caveat here that the prices are as of January 1st of each year and there has been some improvement in the stock market through 2010/2011.

Now of course I know this isn’t a fair comparison – the 2.55 market isn’t nearly as liquid as the stock market, and a used bag doesn’t exactly garner retail price. Still, I think the findings are interesting – one might make the following conclusions, but feel free to make your own:

Chanel has been insatiably greedy over the past few years, riding the luxury wave to the mass market (highly likely)
If you were deciding between a 2.55 and Ford stock in 2004, pat yourself on the back
If you want to buy a 2.55 now, you can either view it as buying at an unjustifiably high price, and perhaps hope that another 8 years from now the price will have tripled again (to a healthy $10,200). I might recommend the former, but I would have thought the same thing in 2004, and was vastly wrong.

Remember, past performance is no indicator of future return…!