Will the Handbag Bubble Burst?

The New York Times Style section had a clever article that compared the luxury handbag market to the housing bubble. I found the comparisons compelling, and I particularly enjoyed the lede grafs:

Everyone's talking about the bubble, and when it will burst.

There is too much inventory. Prices are absurdly high. And analysts are predicting a slowdown in a market that may have already passed its peak of irrational growth, in 2004. Even as prices have increased exponentially over the last three years, with buyers trying to get in on the ground floor of premier properties …

Some people are concerned that a combination of volatile interest rates and the weakened dollar will ultimately cripple the market.

Status handbags, you see, are a lot like housing. After the rise of the $1,000 purse, fashion’s equivalent of the $1 million studio, there inevitably comes talk of a backlash. Are we now living in a handbag bubble?

The article presents a lot of evidence that women have become "over-accessorized," buying as many as four bags per year. And with gas prices creeping even higher and consumer spending continuing to slow, one has to wonder if consumers still have an appetite for dropping $1700 on a Fendi bag at Neiman Marcus or even $600 for the latest Coach. The Times article points out, anecdotally, that after several quarters of strong growth, that Coach's most recent earnings were a bit of a disappointment. In its earnings release, the company's ceo cited decreased traffic trends in its North American stores. Coach also lowered its comparable store sales expectations.

However, it's all relative. The handbag sector is still growing at a healthy clip, but it's not as strong as it has been in years past. Consider this from the NYT article:

Handbag sales in the $7 billion United States market are expected to increase by 15 percent this year, according to the stock research firm Telsey Advisory Group. This is considered a disappointment, because the growth is about half as strong as the category’s 28 percent gain in 2004.

But still, growth is growth—and concern that the handbag business will go bust is not rampant in the industry. The Times ends the article with a quote from the fashion director at Neiman Marcus, who said that last month, 25 crocodile Louis Vuitton handbags, made for the retailer's 100th anniversary, sold out in a "snap". Oh yea, and by the way, each handbag was $25,000—yikes!

I don't think that the Neiman Marcus comment is surprising. Even in times of (potential) economic stress and downturn, those who are least affected are the affluent. Those who spent ridiculous gobs of money for handbags at Saks and Neiman will continue to do so because there's little going on that will change their spending habits and buying power. Those pushed further to the middle of the pack, who say aspired to buy Coach bags a few hundred dollars a pop, may not be looking to do that so much anymore.

It might be an exaggeration to say that the handbag bubble is going to burst—especially on the higher end of things. It does seem though, that the "mid-luxury" market might suffer a bit.