For Designers Today, Success Is in the Bag

Once a mere accessory, today handbags are one of the most popularand profitableproducts in the fashion industry

The best thing that ever happened to the handbag industry was blue jeans.

As more and more women began to dress casually, they realized they needed an accessory to emphasize their wealth and status. Shoes can be uncomfortable or impractical, jewelry too flashy or too tempting to thieves, but a $1,000 bag from Gucci or Chanel sends a simple but clear message to salespeople, waiters, hotel clerks, and others that the woman standing before them in battered jeans and a frayed shirt not only has good taste, but the means to indulge it.

The apotheosis of the handbag is still fairly recent. To be sure, well-heeled women have been buying smart bags for day and evening wear for generations, but it was usually an afterthought in terms of a designer's business—a side dish to the main meal of apparel and shoes. But as women became not only more casual in their dress, but more affluent, the bag took on increased importance in a wardrobe. More important, a bag had the double advantage of being both practical—many of them are astonishingly voluminous—and one size fits all.

At the beginning of the 1990s there were only a handful of well-known upmarket handbag designers (Louis Vuitton (LVMH), Fendi, and Hermès), many of which were European companies with a history of making quality leather goods. Since then, the handbag business has exploded, generating more than $1 billion in sales per year. After perfume, bags are one of the most profitable products in the fashion business, and there is scarcely a big-name designer who hasn't added handbags to his or her portfolio. For example, London shoe designer Jimmy Choo shifted his attention from shoes to create his Ramona bag, which was one of the biggest sellers of 2007.

Watching Stars and Trends

The popularity of handbags has been helped by their association with celebrities. A photo of Lindsay Lohan toting around a Balenciaga Motorcyle bag or Paris Hilton carrying a Fendi Zucca shoulder purse is money in the bank for the designers. "Celebrities are great contributors to the handbag business," says Rae Ann Herman, accessories director for Glamour. The handbag "is a status symbol. Ultimately, girls and women alike are drawn to these glamorous lifestyles and try to mimic what they see in entertainment magazines."

But one Victoria Beckham here and a couple of Olsen twins there are not all that pushed the handbag business to its dizzying new heights. Beth Boyle, of Port Washington (N.Y.) retail analyst NPD Group, says simple trends play a huge factor in rising handbag sales. "One of the biggest trends of 2006/2007 was the oversized handbag. Often you saw people carrying larger luxury bags that could easily substitute for everyday totes." In other words, the handbag became more practical. No longer a tiny space to keep your cell phone, keys, lipstick and—if you were lucky—your wallet, the oversized trend meant one bag could fit everything from the daily essentials to an iPod and even a laptop. Herman agrees, "The oversized trend appeals to a lot of different lifestyles. [You] see moms carrying large bags to school to pick up their kids, but you also see businesswomen and attorneys taking them to work."

The more interest consumers paid toward bags, however, the more serious the price inflation. In Britain, retail giant Selfridges reported that the average price of its designer bags shot up to £850 (about $1,700), a 55% increase since 2005. As a result, British women reportedly spent £350 million ($700 million) on handbags in the past year.

Pride of Ownership

"It may sound crazy," says Herman. "But the truth is that women see handbags as an investment. Unlike clothes that they may grow in and out of, or that generally only last one to two years, a handbag is something women can keep for years to come. Especially when it is a monogram Louis Vuitton or plaid Burberry (BRBY) that continues to be produced and therefore never goes out of style."

Nicola Sugden, handbag buyer for British retailer House of Fraser, adds, "A great handbag works with many outfits, so the price per wear starts to look very affordable." Fashion pundits agree that handbags are fit for all shapes and sizes, so women no longer mind coughing up the extra cash. And when a handbag really takes off, many can't put a price tag on the pride and joy that comes with obtaining that 'It' bag.

Take the Yves Saint Laurent Muse, despite a hefty average price range of $1,200 to $1,800 (although it can go as high as $14,995 for a version in crocodile), it was the most popular and best-selling bag of 2007. "All over the streets, it was big news when [the Muse] hit," says Herman. "It had the oversize, and it also had the right hardware." And, as always, it graced the shoulders of a plethora of A-listers: Jessica Alba, Nicky Hilton, Jessica Simpson, and Naomi Watts were more than enough to get the bag added attention. "It definitely got a lot of editorial space," says Herman. "It's kind of the same with YSL's Downtown bag, which also did great business in 2007. [Both of the bags] got a lot of press."

Take One Every Three Months

The other 'It' bag of the season came from U.S. designer Marc Jacobs, whose eponymous company is owned by LVMH. His black leather Stam bag created a rage on par with any European hotshot. Touted for their hardware, embellishments, and attention to detail, Marc Jacobs bags appeared on many women's wish lists.

Even better news for the bag biz: Not only are women willing to spend thousands of dollars buying bags, they are also buying more than one big-ticket bag per year. One study says the average 30-year-old woman buys a new bag every three months. Here's the downside: Since many bags go out of fashion almost as quickly as new ones hit the shelves, many women are going to start needing a lot more closet space to dump their growing collection of unused bags.

See BusinessWeek's slide show of the best-selling handbags of 2007.

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