STATE OF THE ART
The perception that collecting art is the road to riches for the moneyed classes may be true for a small minority, but the sector has limped along while high-net-worth wealth has doubled, writes CHRISTOPHER DONNOLLEY
THE FINE-ART AUCTION MARKET
in Europe and the Americas is still dominated by venerable auction houses, most of which trace their origins to the mid- to late-18th century. The two leaders remain Christie’s and Sotheby’s, followed by Phillips and Bonhams. Their patch, though, is increasingly being shared by online sites such as Artsy and Saatchi Art, which not only offer buying and selling facilities, but also excellent educational resources that can be tailored to users’ needs – and are usually free. Not surprisingly, the online art services have witnessed a boom in trade and user traffic during this year’s Covid-19 lockdowns, according to just-released reports by UBS Art Basel and Deloitte.
Nor is there a shortage of excellent books, websites and advice, among them Art Collecting Today: Market Insights for Everyone Passionate About Art by Doug Woodham, an art collector and economist, former partner in McKinsey and former president of Christie’s in the Americas. Woodham’s findings are based on interviews in 2015 and 2016 with some 100 collectors, lawyers, art advisors, gallerists and auction specialists in the United States and Europe.
As Woodham notes, there’s been nothing short of an information revolution in recent years, which enables online users to tailor their own art education as well as to buy and sell art. Three new technologies in particular have made this possible: the JPEG standard, Google Images and Instagram.
Introduced in 1992, the JPEG standard is an algorithm developed by the Joint Photographic Experts Group to compress digital images into smaller, much more manageable files and it remains one of the most widely used formats for storing and transmitting digital images.
As Woodham explains, the next challenge resulting from the resulting flood of high-quality images was being able to locate them, which resulted in Google Images in 2001. Instagram, the newest of the three technologies, has been embraced as an emerging platform for artists, galleries and critics – not to mention potential buyers – to share images and news.
The technology has radically changed the way art is marketed. An example given is that of CJ Hendry, a young Australian woman artist who built a global audience on Instagram for her work before moving to New York. A self-confessed workaholic, she went full time in 2013, sharing stills and video images of her at work, and people began to take notice. By early 2014, she had 100,000 followers and was selling work directly via her account. New work typically sold within a few days and there was waiting list for drawings, which sold for anything between US$5,000 and US$50,000.
By November 2016, Hendry had 265,000 Instagram followers, and her waiting list had grown to 6,000 – all generated completely without gallery representation. At the same time, other famous artists building substantial Instagram followings included Banksy, with a million followers, and KAWS (Brian Donnelly), with 553,000 followers.
Before venturing into what’s happening in the local and international art-investment scene, it’s useful to consider what isn’t happening, not just now amid the Covid-19 crisis, but during the past decade. Despite the second decade of this century seeing the atomisation of price records, such as the US$450.3 million paid for the long-missing Da Vinci Salvator Mundi, which as recently as 1958 was auctioned by Sotheby’s London for just £45 after being mistakenly attributed to a student, Boltraffio, rather than the maestro himself.
For one thing, the international art market isn't as huge as many might believe. Turnover has been rather steady for the past decade, after a decline during the recession of 2008. About US$64 billion of fine art and antiques was sold globally in 2015, according to The European Fine Art Foundation (Tefaf). This, says Woodhan, was about 16 times the sales at Tiffany & Co and 60 percent of sales at Amazon. Based on the value of the objects sold, the market is roughly evenly split between galleries and auction houses.
The top category, figures for which only come from auction houses, was Postwar Contemporary, at 46 percent of the total value of sales. Modern Art (between the wars) was runner up at 30 percent, while Impressionist and Post-Impressionism accounted for 13 percent, as did Old Masters for the remainder. Tefaf estimates that 90 percent of auction sales were worth less than US$50,000, but these represented just 12 percent of the total value of auction sales. Some 2,500 objects sold for more than US$1 million in 2015, or almost 60 percent of the value of auction sales.
Meanwhile, although work by some 59,000 living and deceased artists was sold at auction in the same year, about only 600 of these accounted for 57 percent of total auction sales.
Deloitte, the professional-services multinational, is concerned that the value of art in the market has severely lagged behind growth in global wealth. “Despite the boosted interest in art, growth trends in the art market have been anaemic compared to the growth in global wealth,” it states in its report Artful Investment: Blending Art into the Wealth Management Picture. Its authors asked: “Why are we not seeing a higher correlation between wealth generation and the size and development of the art market? What is holding wealthy individuals back from putting more of their wealth into art as an asset class?”
Put another way, total financial wealth of the high net worth index more than doubled between 2008 and 2018, from US$32.8 trillion to US$68.1 trillion. But according to sources such as the Capgemini World Wealth Report, and the Art
Basel and UBS Global Art Market Report, art markets saw only a nominal increase of 9 percent in the same period.
In this year’s survey, 75 percent of collectors said that lack of transparency was the biggest threat to the reputation of the market, compared with 62 percent in the 2017 survey, and marks the strongest consensus on this point since the question was introduced in 2016. “Buyers’ trust in the art market depends on its level of transparency,” the report’s authors wrote. “The survey results made this clear, showing that a lack of transparency was regarded as one of the top issues that most threatens the market.
The market has often showed resilience to events in the wider economic and political environment. But the events of the first half of 2020 has presented the art market – and gallery sector in particular – with some of its greatest challenges.
Despite already having trimmed staff, many galleries have been forced to furlough or shed more during the crisis – a third of galleries cut staff in the first six months. Those with turnover of between US$250,000 and US$500,000 (with an average of only five employees) reported the largest share of downsizing, at 38 percent.
Comparing the first half of 2020 with the same period in 2019, galleries reported that the value of sales fell by 36 percent on average, with a median decline of 43 percent. Smaller galleries reported the largest decline in sales. Most galleries expected sales to continue falling, with only 21 percent expecting improvement in the second half. While there was more optimism for 2021, only 45 percent of galleries expected sales to rise from this year’s levels.
But lean times often bring new opportunities. Things were more upbeat regarding online sales, which rose from 10 percent of total sales in 2019 to 37 percent in the first half of 2020. Despite having the lowest share in 2019, galleries with the largest turnover showed the highest increase, with those in the US$10 million-plus segment rising almost five-fold to 38 percent.