The Art Market Has Stagnated. It’s Time for the Industry to Act
Spend 10 minutes talking to someone in the art industry and it’s likely at least one of two commonly held beliefs will be offered up: The art market has experienced staggering growth; and gains have recently concentrated at the top—and, combined with significant increases in costs, all but the biggest players are being squeezed out.
Both of those statements are true, in part. The art market did once experience staggering growth—in the decade leading up to 2008, globalization and a boom in interest in contemporary art helped it more than double in size. Big galleries have done exceedingly well in recent years. And the costs of doing business have risen.
Between those partial truths and the reality of the art industry in 2019, however, are some brutal facts. Failing to openly acknowledge those facts doesn’t just obscure reality, it also blocks the industry from finding ways to correct them.
Here are some of those facts:
- The art market didn’t grow over the last 10 years. It didn’t even remain flat. Adjusting for inflation, it shrunk. Using Clare McAndrew’s research as directional, the art market totaled $67.4 billion in 2018, up from $62 billion in 2008. However, while not unusual for economic reports, these are nominal sales figures, meaning that 2008 sales are represented in 2008 dollars, even when compared to 2018 sales. If you adjust for inflation, representing the 2008 sales in 2018 dollars, the picture changes significantly—to a market shrinking, in real terms, from $74 billion to $67.4 billion. By comparison, revenues in the global luxury goods industry grew from $194 billion in 2010 (or $222 billion in 2018 dollars) to $334 billion last year, according to consumer data provider Statista; the Swiss watch industry grew from $26 billion in 2010 (or $30 billion in 2018 dollars) to $45 billion last year (growth has largely stagnated since 2014).
- Over the past decade, the global economy has experienced a remarkable period of growth, with the S&P 500 currently up over 80% from its pre-recession high in 2007, and the Global GDP having posted annual gains of 3.3% to 5.4% every year since 2009, according to the IMF. Because the art industry does not operate in a vacuum, it is natural that the costs of doing business have risen as a result, whether fixed costs like rent (up a reported 33% in Chelsea from $90 before the financial crisis to $120 per square foot in 2017) or more industry-specific expenditures like art fairs and shipping (up 27% over the past five years, from $15.7 billion in 2014 to $20.2 billion in 2018, according to McAndrew). Given the pain they cause to businesses that aren’t seeing their revenues expand, these cost increases have garnered a significant amount of attention—and helped spark new, collaborative, cost-saving models in which galleries share spaces or art fair booths. But savings can only go so far. Focusing mainly on macro-induced cost increases as what’s squeezing the industry, rather than on why growth didn’t keep up with the economy at large, is a bit like blaming the ocean for filling up your boat’s hull after letting holes develop in it from rot—it’s one perspective on the problem, but not one that’s going to save you from drowning.
- On average, small galleries are closing at a lower rate than small businesses in the U.S. on the whole, and they aren’t closing at a higher rate than galleries have in the past. In fact, a fraction as many galleries closed in 2018 compared to most years in the last decade. New galleries, however, are opening in even smaller numbers compared to past years. Again, the market’s failure to expand is to blame: Other than for blind optimism or passion buoyed by an enviable financial position of not needing to turn a profit, why would you open a business in a contracting industry?
There has been a temptation to look at the market’s expansion at the top end and contracting sales at lower price points, and to draw a comparison to the critical issue of rising income inequality in the wider economy. Growth at the top end of the art market has enabled mega-dealers to invest in significant business model innovation and grow even more: expanding their footprints globally and their programs to not only foster the careers of living artists by selling many fresh-from-the-studio works, but to also engage in scholarship and build the legacies of deceased artists in order to add a new, lower-volume, higher-value stream of sales. Meanwhile, strong demand for trophy works from the 0.01% of the world’s wealthiest has helped the major auction houses create the appearance of a growing market (even if Sotheby’s business has followed a similar trend to the market overall, closing out 2007 with a market cap of $1.82 billion and ending April 2019 at $1.89 billion).
An observer of the art market looking through the income inequality lens might focus on the redistribution of these gains via subsidies—an idea that has garnered a lot of traction following the challenge David Zwirner issued last year to Art Basel global director Marc Spiegler to make galleries like his support the participation of relative upstarts at Spiegler’s fairs. (They now do at Art Basel and a number of other leading fairs.)
These subsidies, like cost-cutting measures, can help ease some of the financial pressure on galleries. But they should be viewed as a stopgap to more meaningful evolution, such as creating a more sustainable representation structure for artists—one that would allow emerging galleries to prosper from those artists becoming established and being better served by a bigger dealer—rather than an end in and of themselves.
Simply put, comparing big dealers and auction houses to Big Tech and focusing mainly on how their success can be redistributed can be a distraction from thinking about what everyone in the industry could do to help correct the market’s stagnation and ultimately provide more opportunities to artists.
Capital-intensive activities like global expansions and the acquisition of famous artists’ estates serve an ultra-high-net-worth subset of collectors around the world and an über-successful subset of artists. But the bigger opportunity for the majority of actors in the art industry lies in unlocking the wallets of the many more merely high-net-worth individuals—both young and old—who are interested in art, but don’t currently buy it.
And there are numerous opportunities for business model innovation and business practice evolution in the art industry that could address this cohort, from rethinking pricing strategies and addressing information asymmetries to questioning hierarchies of taste and reevaluating the intermediaries who determine what makes art “good.” These opportunities don’t require a war chest of Warhol-derived cash to unlock; could help to correct the top-heaviness of the industry as a whole; and support the existence of more galleries, more auction houses, and—most importantly—more artists in the world. Because of this, I have great confidence that the market can resume its once-rapid pace of growth.
Over the coming months, this column will dive into learnings from Artsy’s own product development—as well as data-backed insights from our global network of more than 4,000 galleries, institutions, auction houses, gallery weekends, and art fairs—to unpack new and old methods helping various actors survive and thrive. We’ll look to research and examples from other industries for models of how commonly held business practices might be updated to effectively attract and retain new buyers. And we’ll hear from people across the art industry who are already leading the way.
I don’t expect everything put forward here to be popular, revolutionary, or even successful (growth almost always requires experimentation and iteration along the way). But I do expect those potential small setbacks to be a lot less painful than the much bigger failure we risk by parroting a decade-old narrative, failing to pursue solutions, and, in doing so, limiting the opportunities available to artists.
Along the way, I welcome your feedback, ideas, and comments via email or on Twitter.