On October 27th, the Wall Street Journal ran a story suggesting that art dealers have painted themselves into a corner in their competition and dependency on the auction houses. Have they really?
Clearly dealers are worried about the intrusion of the (powerful and monied) auction houses into their territory. But one would have to ask whether the strategy adopted by this gallery, to cut off clients who neglect to check with them first, before selling works at auction, makes any sense as a way to address the problem. As defined in the article the problem is that the gallery client doesn't ask the gallery before he/she decides where to sell the work of art. Can this really be the problem for the galleries? Hard to believe. And why would a savvy collector not mention to the gallery that he is considering selling some work previously purchased from the gallery? Isn't the collector better off having the gallery compete with the auction house and possibly offer an even better price (or terms) for the object?
I suspect the real problem for the galleries is that most contemporary art galleries are expected to protect their artists’ prices, ie., not permit them to go lower than the gallery price, and to the extent that the gallery has the economic strength to do so, to control the market in the artists’ work. In a rising market, the gallery doesn't have to worry about the protecting the artist's price; but it becomes very expensive for the gallery to support prices in a declining market, particularly, if it is forced to bid (buy) works above its own retail price.
Of all the players in this equation, the galleries have a big stake in supporting the artists prices: with large inventories of works, they have the most to lose. If the artists work is brought to auction and does not do well... the dealer has far more pieces that have been negatively affected by the well publicized weak sale, than does the collector. So, the gallery is under pressure to support the price range, determined by the auction house and collector, when they, not the gallery,set the low and high estimates for the auction sale.
Moreover, an effort to influence sellers not to sell to their best advantage is doomed to failure, particularly when the best the gallery can do is to say "I won't sell other works to you". If the past 50 years has demonstrated any principle in the contemporary art market, it is surely that money talks.
Where the galleries might fruitfully turn their attention is to the buy side of the process. The galleries should make their case for why it is increasingly stupid for a retail client, yes, even a savvy collector is, in the vast majority of cases, a retail client, to buy at auction. In an orderly and rational market, the auction house would function primarily as a clearinghouse for the trade, wholesale, venues; The people in the trade, the professionals, are best suited to cope with the deficits, inherent in this market: the inability to meaningfully inspect the work, the lack of time to research the accuracy of the details included in the published description of the work, the inability to view the work in surroundings approximating those that the prospective purchaser might have, the inability to view more than one of the artist's work at any time, to compare etc. etc.
No well regarded collection has ever been assembled through a majority of auction purchases. Collectors have historically taken their time, gained knowledge and become informed, used representatives to shield their identity when pursuing highly desirable objects, bartered with the dealer, collaborated with museum curators and other advisors. None, or very little, of this is possible when dealing with the auction houses.
If the collecting public resorted to buying at auction more selectively, thereby reducing the demand for the art works available through the auction process, prices should ultimately recede. The dealers could once again look to the auction houses as venues at which to replenish inventory. The collectors would benefit by being able to purchase their art works in a calmer setting, more discretely, and with better assurances that they understand what they are buying. Of course, with the auction process a public process, it is surely tempting for the collector to venture in and buy an occasional piece at a “dealer price”, but as a trend, this phenomenon has only increased prices to all participants in the art trade, with the auction house reaping superior profits from the increased buying activity.
Wednesday, October 31, 2007
Musings on the Art Business
