Green’s Dictionary of Slang

bag lady n.

1. (orig. US) a female derelict, usu. sleeping rough or in shelters, often an alcoholic or meths drinker, whose most cherished possessions are the numbers of (to an outsider) junk-filled shopping bags, which festoon her as she walks and which never leave her side [abbr. shopping bag lady. Coined for such women living on the streets of New York City].

[US]J. Blake letter 30 June in Joint (1972) 232: For this ripple, you can call me Rose the Bag Lady.
[US]R. Price Ladies’ Man (1985) 7: There was nobody out on Broadway except bag ladies and street whacks.
[US]A.K. Shulman On the Stroll 8: Bag ladies, panhandlers, freaks roamed the streets like they were home.
[[US]‘Jennifer Blowdryer’ Modern English 4: Bag Lords, Bag Man [...] There are a lot of [...] names that invove the use of the word bag, this relates to living out of dumpsters, leftover restauraht food, found shelter].
[UK]D. Jarman letter 12 Mar. Smiling in Slow Motion (2000) 93: A bag lady with a little circus dog passes in front of the bus.
[UK]M. Amis Experience 91: My mother has never cut a very ladylike figure, and she said she felt fraudulent, like a thieving baglady, whenever she used her chequebook at the supermarket.
[US]J. Stahl Pain Killers 293: Chill, Doc, there ain’t no hit out on the bag lady.
[UK]Eve. Standard (London) 29 Feb. [Internet] Bevan [...] looked like a ‘bag lady’.

2. (S.Afr. gay) an ugly drag queen.

[SA]K. Cage Gayle 55/2: bag lady n. ugly drag queen (The competition was full of bag ladies).