Bringing Home the Birkin: Handbag Arbitrage

Former hairdresser demonstrates great trading prowess by traveling across Europe and executing an effective plan which enables him to buy "rare" handbags. He then re-sells these rare items later at a nice mark-up.

We've been covering some heavy mathematical and frankly intense topics, so instead, today we'll go through a very interesting story which is tangentially related to trading. In between trading, playing sports, poker, and other activities, I sometimes relax by reading books on other various subjects. On the heels of recommendations from friends, I picked up "Bringing Home the Birkin" by Michael Tonello and finished it in one weekend. Indeed, the target readers are usually heavy consumers of luxury items, mostly females, but it really has great educational value for everyone.


The Synopsis

Michael Tonello moves to Europe to live the dream of working as a hairstylist abroad. One day, he is able to purchase a coveted Birkin Bag. If you grew up in the suburbs like me, you will be unable to guess correctly the value of these Birkin bags produced by Hermes. Some bags are roughly in the magnitude of a down payment on a house. Anyways, these hand bags are such in demand that Mike is able to repeatedly purchase them through various means (purchasing other items as to give the image of an important customer, bribe salespeople, use an associate who apparently is in with another employee, etc) and then re-sell them to others at nice mark-ups (in fact, one of the people he sold his bags to was an online re-seller). He ends up eventually amassing a small fortune doing what all good traders do, buy low / sell high.


Lessons Learned (the Juicy Analysis)

1. Birkin Bags are not rare: one of Tonello's arguments is that in fact, no handbag is rare or "special" and that if one spends enough at a store, one is able to purchase a bag. The most common tactic of the author is to check-out with $10'000 worth of merchandise and then ask for a Birkin bag; if the store refuses, then Mike would simply not purchase the items. As you can imagine, usually a bag magically reappears in the back of the store. This goes against the whole impression set by Hermes and the media that there is a waiting list for these rare bags.
2. Arbitrage requires EQ: common folks might envision the best traders are high-frequency programmers who sit along in front of a dark screen and type millions of lines of code. In fact, having healthy relationships with your counterparties and clients also enables you to get the best price or even get the "look" on the deal sometimes. I find this true in life, that one should never estimate the value of being liked, even in a world as objective as trading.
3. Replicating a successful strategy > creating new strategies: the author basically ran around all of Europe doing the same thing and for the most part, was successful in buying a Birkin regardless of where he traveled to.
4. Immediacy = Premium: arbitragers like Michael Tonello benefit because people who need something or need to transact should always pay a premium or sell at a discount to fair value. Why do people overpay for these bags? Because rich people need these items NOW, not in the 3 years required to be on the waiting list.

And By the Way...

Tonello's story sounds very attractive BUT before you go out arbitraging handbags, please consider this risk disclosure: a $15k Birkin bag to most people carry little real intrinsic value and therefore is effectively a greater fool asset. So by all means, if you try to scalp (buy and sell quickly) any type of greater fool asset, you better be in the moving business and not in the storing business; make sure also that you stick to a very short time horizon.

Mr Tonello in real-life