Introduction
On a lazy Sunday, a 24-year-old is going through the various luxury consignment apps and is making the case that a ₹2 lakh handbag is not in any way a luxury at all. It’s an asset class. Her dad has that instinctive reaction of comparing that figure to the traditional asset classes we all know and love (FDs, sovereign gold, down payment on property) and the handbag just doesn’t stand up to that in terms of any kind of yield. She says you learn from the digital resale platforms that high-end spending is an act of investment rather than consumption.
While this family dialogue is illustrative, the core arguments fall into three distinct variants:
- The Birkin: It never actually loses value.
- Louboutin heels: High utility via a decade of “cost per wear.”
- Labubu collectables: A toy bought today will cost ten times more in ten years.
The dad immediately sees the difference between an asset and a consumable. The asset will give you a predictable return (or increase in capital) which will not only cover its own risk but also any exit costs. The consumable, on the other hand, gives you utility immediately with depreciation. Luxury can blur the line, as some things do, in fact, have value retention or even appreciation. The question will be whether there is sufficient appreciation to cover the three major deductions: platform transaction costs, the opportunity cost of the money you could have put in the bank and the uncertainty of actually getting a buyer in the future. If not, but it still gives you pleasure, then it’s a consumable which is delivering a pleasure dividend.
The third line of defence was exercised on 25 March 2026 when Pop Mart (makers of Labubu) published its 2025 financials: revenues up 185% to ¥37.12bn, profits up 308% to ¥12.78 billion. The stock nonetheless closed 22.5% down, its biggest drop in just about a year (per Reuters). As Jeff Zhang of Morningstar put it, growth was expected to be much faster, and Q4 in particular was very slow, casting doubt on the sustainability of the top-performing characters. The market has clearly priced in an infinite hype cycle where everyone who buys a Labubu is convinced that it’s the real thing.
Moreover, the objective of this article is to determine if luxuries and virals qualify as legitimate investments or whether they are just consumption masquerading as investments.
What the Stamp Collectors and Art Buyers Already Learned
This was a question that economists would have asked about art and stamps and then generalised it to luxury goods. Baumol (1986) described art as a “floating crap game” and put its annual real return over the centuries at about 0.5%. Mei and Moses (2002) found that art underperformed stocks and that the great masterpieces underperformed the average painting. British stamps delivered a real return of 2.9% per annum between 1900 and 2008 (Dimson & Spaenjers, 2011)- higher than bonds, lower than equities. Subsequent research has estimated art, stamps and violins at 2.4%-2.8% as opposed to 5.2% for UK equities.
Crucially, these are gross returns. Transaction costs can be as much as a quarter of stamp prices, and Korteweg, Kräussl and Verwijmeren (2016) showed that art indices overstate returns due to selection bias (assets which have appreciated are much more likely to be resold).
The evidence on handbags is coarse and relies heavily on reseller reports:
- Baghunter (2016): Reported Birkin prices rose by over 500% (1980–2015) with an annual return of 11.2%- 14.2%.
- Rebag Clair Report (2025): Average Birkin resale value up 92% over 10 years, Hermès list prices up 43%.
- Twelve-Bag Index (2011–2017): 7.4% annual growth, 6.88% standard deviation, Sharpe ratio of approximately 0.54.
Three core analytical principles apply:
- Resale returns must be net of the high platform commissions.
- Index data has to be treated with some degree of scepticism given the very thin sampling.
- Sales data is extremely skewed by positive selection bias.
Unlike classical art or stamps, where supply is fixed by history, luxury bags and viral toys are subject to open-ended production where companies can actively control and scale supply. With luxury bags and viral toys, you have open-ended production where the company can, in fact, control the scale of supply.
A Yardstick for the Dinner Table
The yardstick consists of four elements:
- The Cash Flow Test: Nothing from the handbag to the shoe to the toy produces any cash flow. All the gains are purely from the resale.
- Selling Cost: Resale platforms will take up to 30% in commission and fees. The asset would have to appreciate by around 43% just to break even on the purchase price.
- Opportunity Cost Barrier: The money spent on the luxury is money that isn’t earning risk-free interest (assumed at 7% FD rate).
Required Gross Price Increase per year, g=1+r(1-c)1/T-1
where “r” stands for the rate of deposit (7%, an assumption), “c” for the selling cost (30%, the percentage used by the fashion media regarding the Baghunter report), and “T” for the number of years.
| Years Held | Gross price rise needed per year to match a 7% deposit after a 30% selling cost |
|---|---|
5 |
14.9% |
10 |
10.9% |
20 |
8.9% |
(After 10 years, an item must grow near 11% annually just to match a passive bank deposit)
- Risk Adjustment: via the Sharpe ratio. As the un-resold items are excluded, historical market volatility is under-stated.
The First Defence: a Birkin Holds its Value
Her first argument is quite persuasive, but let’s subject it to the realities of the market. The Birkin will obviously hold its value better than the vast majority of consumer goods, but the numbers don’t bear out the idea that it’s a particularly good investment.
Assume an initial purchase of ₹10 lakh held over 10 years:
- Rebag Clair Data (+92% gross): ₹10L grows to ₹19.2L gross. After a 30% resale fee, the owner receives ₹13.4L net (an effective ~3% annual return).
- 7% Bank Deposit: ₹10L grows to ₹19.7L net, risk-free.
- Twelve-Bag Index (2011–2017): Yields an effective 3.6% net annual return.
- Baghunter Report (2016): Yields 10.2% net (₹26.4L), but represents an unverified historical outlier.
Adjusting for volatility (i.e. doubling the reported variance to account for the unobserved illiquidity), the 12-bag index Sharpe ratio falls from 0.54 to 0.27 and is thus worse than standard equities.
Verdict: Partly valid. The Birkin does beat the general level of consumer goods in terms of capital preservation, but doesn’t outperform the risk-free bank return once you’ve factored in the exit costs and opportunity costs.
The Second Defence: I Will Wear Them for a Decade
This defence gives up on investment logic and goes straight for consumption utility.
Under economic theory, consumption is the be-all and end-all of economic activity. The utility you get from wearing a designer item is a real pleasure dividend. To frame utility as financial wisdom is a fallacy.
Using the Cost-per-Wear (CPW) metric:
CPW = (Purchase Price – Resale Value) / Total Wears
- Luxury Pair (e.g., Louboutins): ₹80,000 purchase with 0 resale value over 300 wears = ₹267 per wear.
- Standard Pair: ₹8,000 purchase over 100 wears = ₹80 per wear.
To achieve the same cost efficiency as the standard shoe, the luxury shoe would have to be worn many thousands of times; well beyond the normal product life under normal usage.
Verdict: Failed. Wearing them to death removes all resale value, so it’s a case of consumption rather than capital preservation.
The Third Defence: It Will Be Worth Ten Times As Much
These viral collectables follow classic speculative boom-and-bust cycles (Minsky, 1986):
- Displacement (June 2024): Celebrity endorsement (e.g. Lisa from Blackpink) leads to a massive amount of consumer awareness.
- Euphoria (Mid-2025): Speculators come in, and the secondary prices get pushed up to 400% above retail.
- Profit-Taking & Crash (Late 2025 – Early 2026): Qiandao resale data via Reuters shows top character “Luck” dropping from over RMB500 in June to RMB108 in October (a 78% market crash). Other series saw drops of up to 57%, trading at a discount to their original issue price.
- Corporate Dynamics:
| Hermès | Pop Mart | |
|---|---|---|
How the firm earns |
A small number of items sold at very high margins |
Large volumes across many characters |
Response to excess demand |
Restrict: purchase history, limited by customer |
Expand: more production, more of its own stores |
Effect on resale premium |
Supports it |
Compresses it |
Pop Mart’s March 2026 results were a case in point with 185% revenue growth (¥37.12B) and 308% profit growth (¥12.78B), yet the stock dropped 22.5% on the day as Q4 momentum slowed. Pop Mart equity is a cash-flowing asset. The plush toy in itself is not a cash-flowing asset and is entirely reliant on the speculative fervour.
The four stages that Minsky describes are a perfect fit for these speculative cycles. The defence fails: Labubu is an illiquid asset with no price floor other than temporary attention, leaving buyers with losses over 50% in a single year.
To sum up, Labubu is a speculation, not an investment. An asset which generates cash flows or is genuinely scarce has intrinsic value. A viral collectable has no such value whatsoever. It’s entirely dependent on the hype and the temporary consensus of the market. The value floor disappears the moment people stop looking at it, and you’re left with nothing but a liquid toy.
Verdict: Failed. Labubu is a speculative, illiquid fad. There’s no yield to speak of and no real supply constraint, so price floors collapse the moment social interest wanes.
Summary of Findings
- Luxury handbags will not outperform simple risk-free fixed deposits due to high resellers’ fees (approximately 30%) and corporate list price hikes.
- Utility theory (“cost per wear”) supports the view that luxury goods used extensively represent expensive consumption, not investment.
- Viral collectables have speculative price cycles without any price floor structures and thus can depreciate quickly.
What the Father Should Concede, and What He Should Not
The divergence between luxury goods and true investments comes down to who controls supply and exit friction.
- Hermès enforces artificial scarcity, allowing high retention, though platform fees erode investor margins.
- Louboutin items incur physical wear, rapidly driving financial resale value to zero.
- Pop Mart maximises corporate volume, diluting secondary market premiums.
The father needs to recognise that purchasing the Birkin was a good decision, but he doesn’t need to describe the purchase as an investment because, in comparison with its opportunity costs, it does not pass his criterion of outperformance compared with regular savings. At the same time, the daughter needs to understand that the true value of the Birkin lies in the joy of ownership. It is indeed her biggest gain from this product.
Therefore, traditional wisdom of the house stands: an investment remains a good idea even once you deduct the cost of its exit. The daughter gets to keep her bag, sport the red soles and indulge in the fashion; she simply doesn’t get to call it an investment. By differentiating the legitimate pleasure of consumption from the false notion of capital accumulation, we dispel the delusion in which personal desire masquerades as financial planning. Luxury items have immense cultural and psychological significance, but shouldn’t be burdened with the responsibilities of a checking account.
The father can concede that a Birkin retains capital better than ordinary consumer goods, but it fails to qualify as a superior investment once net exit fees and risk-adjusted bank returns are calculated. The daughter can enjoy her handbag, wear her red soles, and collect toys for personal fulfilment; she simply cannot categorise them as financial planning.
An investment must retain value after deducting transaction costs and opportunity losses. By distinguishing the genuine joy of consumption from capital accumulation, luxury can be appreciated for what it truly is: a pleasure dividend, not a portfolio asset.
References
- Amihud, Y. & Mendelson, H. (1986). Asset pricing and the bid-ask spread. Journal of Financial Economics, 17(2), 223-249.
- Baumol, W.J. (1986). Unnatural value: or art investment as floating crap game. American Economic Review, 76(2), 10-14.
- Dimson, E. & Spaenjers, C. (2011). Ex post: The investment performance of collectable stamps. Journal of Financial Economics, 100(2), 443-458.
- Korteweg, A., Kräussl, R. & Verwijmeren, P. (2016). Does it pay to invest in art? A selection-corrected returns perspective. Review of Financial Studies, 29(4), 1007-1038.
- Mei, J. & Moses, M. (2002). Art as an investment and the underperformance of masterpieces. American Economic Review, 92(5), 1656-1668.
- Minsky, H.P. (1986). Stabilising an Unstable Economy. Yale University Press.
- Industry Data Sources: Baghunter Birkin Report (2016); Rebag Clair Report (2025); Reuters & Qiandao Market Data (2025–2026); Morningstar Research (2026).
