Amid the champagne toasts and white-wine-sipping of the art world, it’s become common to pour out a little liquor for the several dozen galleries that have closed in the past few years, casualties of rising rents, grueling and expensive art fair schedules, or fickle collecting habits.
But what about the galleries that never opened?
A new report from UBS and Art Basel, The Art Market | 2018, found that the rate of galleries opening has fallen dramatically over the past decade. In 2017, just 0.9 galleries opened for every one that shuttered, down from five openings to every closure 10 years prior, a sign the art market could be losing its dynamism as new entrants face increasingly high barriers to entry.
The analysis was done by Dr. Clare McAndrew, a longtime arts economist (and Artsy contributor
), based on data from Artfacts, a Berlin-based firm tracking artists, galleries, and institutions. McAndrew cautioned that the criteria for the dataset’s inclusion, which required a gallery to have participated in a major fair in the last 11 years, likely meant that a lot of local-level activity was not captured. Nonetheless, the finding does point to a worrying trend in the art market, in which participation at the dealer level is increasingly limited to those with access to investor funds and a network of buyers.
“You either need contacts or money, and most times, you need both,” said McAndrew.
To be sure, the decline in entrepreneurship is, in the U.S., at least, not limited to the art sector
, and McAndrew noted the high number of openings a decade ago was likely due to a burst of gallery openings in Asia. She also noted that galleries tend to stay open relatively long compared to peers in other sectors, with an average of 24 years in business.
But the trend does point to several larger issues in the art market, namely those of access to capital and the cultivation of new buyers. McAndrew said banks tend to be wary of lending to art galleries, as they have little familiarity with the business model and are perhaps discouraged by the gallery model’s often-bumpy revenue stream.
Accessing credit, unless one is independently wealthy, has “always been a problem for people, and it’s even worse now,” McAndrew said.
Even when dealers make sales, it can take some time for them to get paid. While the majority (62%) of dealers told McAndrew they are paid within two months of a sale, 16% said the cycle can be three months or more. In some cases, that can lead to dealers seeking loans or financing from art lenders (and sometimes more than one, as in the example of New York dealer Anatole Shagalov, who is now embroiled in multiple lawsuits
over nonpayment for works), as they scramble to pay for works or simply cover operational costs.
McAndrew and UBS also surveyed a group of 2,245 high-net-worth individuals (HNWIs) about their collecting habits. Interestingly, 89% of them said they spent about $50,000 a year or less on art and objects, suggesting they were buying from the low- and mid-tier galleries whose price points fit that buyer profile (around 74% of sales by volume were under $50,000, according to the survey of dealers, although those accounted for only 30% of sales by value). Only 2–3% of those surveyed spent over $1 million a year on art and objects. Two-thirds of the HNWIs surveyed said a dealer or gallery was their most frequent channel for a purchase. McAndrew said it is possible the existing collector base was just about sufficient to support the current ecosystem of galleries, but dealers need to be more proactive about cultivating new collectors in order for their sector to expand.
“For more galleries to open, there needs to be more buyers, in lots of different areas,” said McAndrew. “Everyone needs to stop focusing on the same little circle, and look at the people who perhaps are not buying art at the moment, but who perhaps might be in five years’ time. They’re quite short-sighted, a lot of galleries. They’re focusing purely on their current clients and customers.”
This could be because many are focused on just making ends meet, leaving little time for new outreach or marketing efforts. The report noted that dealers are facing rising costs, not just for rent and overhead in major cities, but also for attending art fairs. The survey of roughly 900 dealers (it was sent to around 6,500, of whom 14% responded) found that even though sales at fairs rose by 17% in 2017 over 2016, the costs to attend fairs have risen by an average of 15%. Spending on fairs was, for dealers, the largest area of expenditure in 2017, followed by advertising and marketing. Spending on packing and shipping rose by 12% in 2017 for the art trade as a whole, a cost that is likely entirely born by dealers, as auction houses reported their shipping and packing costs declined in 2017.
Noah Horowitz, director of the Americas at Art Basel (which sponsored the report alongside UBS), said in an interview that the company is keenly aware of these dynamics, and tries to work closely with galleries to ensure that their attendance at Art Basel’s fairs are a success. He said Art Basel staff is traveling more, and to smaller markets, on a much more frequent basis, bringing in new collectors and curators from places like Houston, Dallas, Portland, Washington, D.C.—markets where they had rarely held events before.
He also said the fair is upfront with galleries about what they’ll spend if they participate, whether they take a subsidized Positions booth at Art Basel in Miami Beach for $10,000, or move into the main galleries sector, where booths can start at $35,000.
“Galleries need to think carefully,” Horowitz said. He cited additional related expenses for fair attendance above and beyond the booth cost. “Shipping, adding lights, the travel and entertainment component—it can add up quickly. We’re as candid as we possibly can be.”
But, he noted, galleries are becoming more and more strategic, and finding ways to use the fairs “to greater and greater effect.”
One dealer from the survey told McAndrew that she and several peers had sat down several years ago to discuss their fair strategies, with two of them deciding to no longer participate in fairs due to the outlay of time and energy. But the third dealer decided to stick it out and continue doing fairs, and is the only gallery still in business.
Although the average number of fairs that dealers participated in held steady between 2016 and 2017 at five, dealers told McAndrew they are thinking more carefully about which ones to attend, looking mostly for fairs that can deliver the right mix of international exposure, new collectors, and sales. That could spell trouble for smaller and regional fairs, of which more than 200 have sprung up since 2000, according to the report, bringing the total to 260. As much as galleries depend on fairs for sales, fairs depend on galleries for their survival, too.
“We’re only as successful as the galleries are,” said Horowitz.