'Ah, the language of handbags says it all'

Even in a recession, women can spend big money on luxury accessories. And, at Christie's, they're knocking-out vintage bags for the price of a quality car

When Christie's auctioned vintage Hermès Birkin handbags 10 days ago, nine sold for more than £30,000 each.

The legendary accessory, named after the 1960s actress Jane Birkin, was designed for her by Hermès in the early 1980s and is one of the most expensive handbags made today. Four fetched more than £39,000 each. The top three bags – including A 1998 Rouge Moyen alligator Birkin at £49,250 – went to wealthy private buyers from Asia and Europe, each for more than the price of a three-bedroom house in Lancashire.

But the expensive-handbag phenomenon isn't just the world's elite spending more than the average UK salary on one handbag. In London, and across the country, women, from secretaries to shop assistants, are forking out hundreds of pounds for a piece of leather luxury to carry on their arms.

This flies in the face of the "age of austerity" in which consumers were expected to make huge cutbacks, withhold their spending and heed warnings of government cuts and job losses. Handbags are one of the most popular presents flying out of the stores this Christmas. From Céline to Hermès, sales are soaring. Mulberry's latest results, for the six months to the end of September, revealed a 207 per cent rise in pre-tax profit, to £4.7m.

So will the desire for luxury handbags fade? And how is the rest of the luxury sector faring?

Fashion plays its part. The large designer logo and giant handbag fad may be waning. In next month's Vogue, that Bible of chic heralded "the plain bag movement". Its editorial declared: "It is no longer chic to flash big logo IDs or be weighed down by X-large bags. Sleek and unadorned were bywords for chic."

But, despite the new trend for smaller logos, the latest must-have handbags still sell for hefty prices – upwards of £600. Next season, when the fashion pack grabs Céline's envelope, Alexander Wang's frame bag, Chloé's duffle or Mulberry's satchel, the dent in their pockets will be deep.

Christmas sales of handbags are always high, but Selfridges reports that handbag sales are up on last year. (See box, facing page.)

Expensive handbag buying can be explained in sociological terms. As the French theorist Jean Baudrillard noted, consumption, rather than production, is the driver in capitalist societies. He pointed to the symbolic value of an object – the value assigned to an object by society – and its "sign value" – its value within a system of objects. So while an expensive handbag has no added functional benefit over a cheaper model, what it says about the owner is priceless.

And buyers don't seem to care about the price. Luca Solca, a senior research analyst in the European general retail and luxury goods sector at Sanford C Bernstein, says: "Handbags work as 'markers': given their recognisable shape, design patterns and – in many cases – visible logos, consumers can use them to 'tick the box' and show that they 'belong'. I see no other product category that can provide this function so effectively for women."

Where men tend to use watches as their status symbols, many women – even those without cars, homes and any savings in the bank – have an expensive handbag. One leather goods designer who has benefited from women's obsession with bags is Graeme Ellisdon, who founded Osprey 30 years ago.

"Ah, the language of handbags," he cries. "Your handbag says as much about you as the car you drive: it's intensely personal. And while a woman's choice of handbag is probably something that most men don't consciously notice, other women clock immediately. Obvious logos are one thing but also we're a design-savvy nation, so while some might be impressed by your spending power, women are just as likely to judge whether your bag suits you, is the right shape or size, or a glorious colour."

Handbags win over shoes or clothes for sheer ease of purchase. No sweaty, stressful changing room and it doesn't matter if you are having a "fat day". The handbag will always fit.

But the handbag is not just a symbol of perceived wealth. Mulberry's chief executive, Godfrey Davis, says women also appreciate the investment a good bag represents. The company sells bags ranging between £400 and £900, with a few made of exotic skins selling at around £3,000.

"There is a misconception that only rich people buy expensive bags, but a huge proportion are bought by people as an investment. Clothes go out of fashion, whereas leather goods – in a neutral shade – last throughout the seasons. You can buy it in May, but you can also buy it at Christmas. We have few markdowns and discounts because we don't sell off old styles. This is also attractive to the consumer because they know if they buy a Bayswater bag it will not be suddenly out of fashion. So spending £700 on a bag you use every single day, works out cheaper, over time, than the daily morning coffee."

Mr Ellisdon believes the obsession with bags will endure. "This climate of economic uncertainty has an upside: it makes customers more discerning in what they buy. Whereas the trend used to be to buy ostentatious luxury, with logos and large monograms, now the move is towards genuine quality, hand-stitching and the best leathers," he says.

It is not just established home players that want a piece of the action in the UK. Coach, the US leather goods company, is keen to join in. It has hired the property adviser Michael Horwitz & Co to find stores in London and plans to open in the capital's Westfield shopping centre and Bond Street within months.

However, within the sophisticated fashion worlds of Europe and the US, the handbag sector remains in its infancy, relatively speaking.

Erwan Rambourg, a luxury and sporting goods analyst at HSBC, says: "Apart from a few exceptions, such as Japan, the penetration of high-end handbags is relatively low compared with its potential. Intelligent marketing by brands, which are promoting different uses – such as going out, going to work, weekend, night, day, and so on – is supporting growth. Most sales are still driven by recruitment, ie, the first-time buyers rather than repeat purchasers. But we believe handbags will not lose out to other categories such as watches or accessories. We see all categories in luxury growing together."

The luxury goods brands focus on handbags and accessories because they are more profitable than clothing. Mr Rambourg says: "Generally, leather goods are more profitable because the accessories don't have to be made in different sizes and don't go into sale. Many brands have seen leather goods and accessories increase as a percentage of sales. Burberry is a good example of this."

European and US markets are, in fact, just the tip of the iceberg for the sector. "Globalisation has meant the whole of the world follows the same trends," says Mr Davis."Now, the bestseller in New York and London is the bestseller in Korea and Hong Kong, too. The Chinese market, for instance, is catching up quickly. Whereas it might have taken Europe 30 years to become sophisticated buyers, the Chinese, who may have been interested in big logos, will quickly move on to become sophisticated buyers. This is why there is terrific growth potential in China for European brands with classic products.

"There are many cities in China the size of Birmingham, with huge potential. And, whereas previously they made up a tiny percentage, we are already seeing many buyers in London from China and Brazil."

Even smaller UK names are seeing the potential. After opening a London flagship for Osprey in Covent Garden, Mr Ellisdon is plotting a move into the China market.

China's luxury goods market is still dominated by male consumers. Watches, for example, have been an important growth driver so far, but analysts predict the handbag is the heir apparent.

Jonathan De Mello, the head of retail consultancy at property adviser C B Richard Ellis, says: "There has been a big change in the type of customers shopping in Bond Street and Sloane Street, with the Chinese replacing the Russians as the pre-eminent shopper group. Chinese, Russian and Middle Eastern shoppers are attracted to London because of the high taxes levied on imported Western goods in their domestic markets, which makes purchasing these products in Europe 20 to 30 per cent less expensive for them. They are also attracted by the cachet of purchasing a luxury item from its country of origin. Many retailers trading in London's principal luxury streets have recognised this trend, and a number have recruited Chinese- and Russian-speaking staff as a result."

The handbag phenomenon has, meanwhile, created successful careers in the UK for many new designers. One of the edgiest is Katie Hillier, who has a personal collection of more than 2,000 bags. Having worked her magic for brands including Luella, Hogan, and Marc by Marc Jacobs, she launched her own line of accessories this year.

Although still a small part of the luxury sector, handbags are playing an important role in its growth. Based on the 2009 survey from Altagamma and Bain Consulting, accessories and leather goods account for 24 and 12 per cent respectively of the sector.

The latest figure, for the luxury goods sector as a whole in 2009, was ¤153bn (£130bn), with the market estimated to have expanded to ¤168bn during 2010.

Luxury goods are in fashion with investors this season as well. Recent bid speculation has circled Burberry, which saw a 96 per cent rise in its share price this year. While LVMH's stealth stake-building in rival Hermès shows the sector has plenty more growth – and thousands more handbags to be sold for silly prices worldwide.

Osprey launches flagship

Graeme Ellisdon, who founded the leather goods manufacturer Osprey 30 years ago, is in talks to open a flagship London store at St Martin's Courtyard in Covent Garden. The business sells its own-designed handbags and leather goods, as well as furniture and homewares. Mr Ellisdon first made his name designing belts for Paul Smith and Princess Diana in the 1980s. The company now has seven designer outlet stores and two full-price stores in the UK.

Top five bestselling handbags at Selfridges

Mulberry: Alexa: £750

Alexander Wang: Rocco: £795

Chloé: Paraty: £800

Marc by Marc Jacobs: Hillier Hobo: £350

Michael Kors: Hamilton Tote: £320