The personal touch can still pay off
To adapt to an increasingly competitive market, dealers have expanded the channels through which they sell works.
Art and antique dealers make their living by co-ordinating supply and demand in the art market, an opaque trading ground where the value placed on information is at a premium. Knowledge and expertise are key for competitive advantage and successful art dealers require both specialist knowledge combined with business acumen. A recent study commissioned by the Confédération Internationale des Négociants en Oeuvres d’Art (Cinoa) and carried out by my organisation, Arts Economics, looked into how dealers are surviving in an increasingly competitive art market, and the key trends affecting their future.
The market divide between dealers and auction houses has wavered at around 50:50 globally for the past decade. Aggregate sales of art and antiques around the world in 2010 amounted to approximately €43bn, €21bn at auction and €22bn through dealers. There are about 400,000 listed dealers of fine and decorative art and antiques in the major global art markets, however, the top 2% to 5% of dealers account for well over half the value of sales.
The competitive landscape of the art market has seen many changes in the past 50 years as power has been redistributed geographically and between market players. One of the most recurrent themes that dealers cited in the research is the challenge they have faced in recent years of dealing with the increasing power of the auction houses, which over the past two decades have transformed from being wholesalers to effective retailers. Many dealers now compete with them for clients and stock.
While the auction houses have gained relative market power over the past 20 years, the survey highlighted key areas where dealers still maintain a competitive edge.
Unlike the more diversified auction houses, dealers often specialise in a few tightly defined fields where they have a high level of expertise. Due to this specialisation, their business models are highly dependent on the successful sale of a small number of works and hence are subject to considerable risk. However, specialisation also brings a number of competitive advantages: dealers often have access to works from more sources and can therefore offer better quality stock and more choice than the auction houses. Many dealers also claim to offer better protection and fuller and more legally binding guarantees. They can also be better value than auction houses as they often take smaller commissions.
The discretion of dealers was also singled out as a key advantage: buyers can avoid revealing how much they spent, which is sometimes unavoidable at auction. For sellers at auction, although the reserve price can protect their bottom line, if a painting is “burned” the negative effect on its future value can be long-lasting. Dealers, on the other hand, can protect buyers from unwanted publicity and only show works privately.
Expensive, infrequent purchases such as art can be stressful for buyers, and dealers can offer a much less pressured environment compared with an auction room where emotional and competitive tensions are high. With a dealer, collectors have more time to consider a purchase and make thoughtful decisions. Many dealers also offer the possibility of trialling, returning items or reselling them in future. Finally, dealers are generally more concerned with building long-term relationships with their clients.
The research found that the main complaints when buying or selling via a dealer were about pricing and perceived value; pushiness, and a lack of transparency.
Shutting up shop
To adapt to an increasingly competitive market, dealers have expanded the channels through which they sell works. Although the traditional gallery remains the most common sales outlet, there is evidence that the traditional retail shopfront is in decline. Global polling of Cinoa dealers showed that 45% of dealer sales are still made through galleries, but some 30% are via art fairs, either local or international.
The research showed that, particularly in larger art markets, a growing number of dealers have closed their shops and now deal privately from offices or homes. The reasons for this shift are varied but include the high cost of maintaining a retail presence in the high street and the low or variable volume of sales. Foot traffic has become too low to justify a gallery in some areas as fewer people visit them than in the past.
Another key factor driving dealers away from traditional retail premises is the increasingly “event-driven” nature of the art market. Fairs have become a vital part of many dealers’ livelihoods, giving them access to international buyers. They are seen as a crucial way for dealers to collaborate in the face of increasing competition from auction houses, creating some of the same “one-room” excitement and competitive energy as an auction.
Many dealers felt that the cost of running a gallery (in addition to frequent travelling and attending fairs) was not justified by sales made through this channel, with some reporting revenue from this source as low as 5% of total sales. Some also felt that buyers’ loyalties were shifting from dealers to fairs, and that these events have become the focus for sales.
The drawbacks of online selling
The growth in online sales has been another important driver in making galleries less important for some dealers. However, it is worth noting that while the internet has become an integral communication and marketing device, e-commerce for dealers remains relatively patchy. The subjective nature of the market and the need for advice and personal contact works against more anonymous, less personal online sales. Dealers’ businesses depend on developing trust and credibility, and personal contact is vital and highly valued when arranging large, infrequent purchases such as art and antiques. Because of this nearly all dealers found it difficult to “sell cold” on the internet, but with established clients repeat business using the online channel was common.
High-value, low-inventory businesses are generally less suited to mass marketing through the internet, and the need for discretion and privacy, especially at the high end of the market, also mitigates against using it to attract buyers and sellers. Some dealers pointed out that the more exceptional the work being sold, the more exclusively they worked with a small number of clients and the less they wanted to reveal what they were doing to an online audience.
Finally, many dealers are technological laggards compared with people in similar industries. Although there are a few dealers with exceptionally advanced web platforms, in general auction houses are way ahead in terms of online marketing, sales and the use of technology. With e-retail expected to grow at five times the rate of traditional retail and to overtake its value by 2020, online sales are bound to become important for all dealers, but it still seems likely that most dealers will continue to pursue a model that combines an offline and online presence.
By appointment only
Some dealers felt that the move towards focusing on dealing services was encouraging the decline of their retail presence. Increasingly for many dealers, discretion, expertise, and intellectual “added value” were their key selling points, and therefore “a brightly lit frock shop” added little to their offering.
Dealers also reported that increasing their freedom to work by appointment rather than being tied to a shop was becoming more important as they devoted more time to travelling to fairs, visiting clients in different locations and in particular searching for new works. Most concurred that there is now more competition in sourcing works than there is in finding buyers.
There are a number of important retail galleries that are bucking this trend. Large international “brand” galleries, often with premises in a few major cities around the world, are still operating successfully via the retail model in many cases.
Other successes included multi-service general shops in smaller markets (with services such as valuation, restoration and auctions in-house); smaller, specialised one-man shops, either where rates are feasible or in major, visible thoroughfares such as key cities or destination towns; and some one-stop, convenient and cost-effective shops or multi-shop premises (for example a group of dealers in a rural area with ample facilities and adjacent amenities).
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