The outsize success of mega-galleries is not, in itself, necessarily a bad outcome. But their relative dominance creates difficulties for those smaller galleries who face rising costs and overheads, such as rents, attendance at fairs, and other business expenses, alongside the structural challenge of holding onto successful artists.
While primary market galleries still work closely with their artists, exclusivity is growing less common, as the art market becomes ever more global. My research (Art Basel & UBS The Art Market | 2017) indicated that in the primary market last year, galleries represented just over one-third of their artists on an exclusive basis. In the art market, young galleries do much of the early nurturing but have little hold on artists. Contrast that with other industries such as sport, in which stars are nurtured from an early age but are locked into strict contracts, with significant penalties for switching.
Many small galleries promote their artists with the help of the artist’s other galleries, in order to develop their careers and help establish their public presence. However, while a collaborative approach can be ideal, the lack of exclusivity can also be problematic. If more than one gallery represents an artist, a “free rider” problem may arise where one or more gallery may abstain or reduce their investment in costly promotional activities while profiting from the activities undertaken by others. Promotional activities are also specific to a particular artist, and are mostly non-transferable.
Furthermore, once a relationship is terminated between an artist and a gallery, these promotional costs are sunk and irretrievable. These structural conflicts may cause galleries to hesitate to undertake these costly promotional activities. Or, as is often the case, smaller galleries will bear the difficult and costly task of launching an artist into the market, without then sharing in the financial upside of their success if the artist leaves for a larger gallery. Although high-end galleries benefit from this system, they have begun to recognize that this dynamic is unsustainable, given the crucial role smaller galleries play in incubating and developing new generations of talent.
While in most other markets, a firm’s failure opens up market share for its competitors, this is not always the case in the art market, where small galleries produce a number of positive externalities. Their contributions to cultural and artistic production, distribution, intangibles such as an artist’s personal and intellectual growth, and other benefits are simply not captured in sales data. When a small gallery cannot compete because both buyers and artists flock to mega-galleries, the benefits it produced are not automatically transferred to big galleries. They are often simply lost altogether.
It is important to note that these issues are not necessarily new, and although we may hear of more businesses closing, there are also more people involved in art market than ever before, with over three million working in galleries and auction houses as of 2016. The art trade as a whole has proven to be remarkably resilient, maintaining and growing the number of businesses and employment over the last decade despite the vagaries of the market.
The problems of business longevity are also not exclusive to the art market. Small retailers everywhere have been pushed off high streets by big brands, and other industries are likely to have fared worse. In the U.S. retail sector, nearly 10,000 more businesses closed than opened in the last quarter of 2016, according to the Labor Department’s data
on business employment dynamics. Just over one-third of American private sector firms have been in business for 20 years or more. For companies in the arts, entertainment and recreational industries, the share is even lower, at 28%.
In a 2010 study I conducted for CINOA, the international confederation of art and antiques dealers associations, I surveyed art dealers from their member associations, and found an average length of time in business of 30 years. To be sure, this was a small, selective sample, biased by being only confined to CINOA membership, which by definition demands a certain longevity. But there are galleries in the primary market that have similarly weathered the test of time, such as Marian Goodman Gallery
, currently in its 40th year in business, or Rhona Hoffman Gallery
in Chicago, which celebrated its 40th year in 2016.
The problem is therefore not about the number of galleries closing in the art market. The real problem is that these small- and mid-sized galleries in the primary market form a critical part of the market’s infrastructure that no one can afford to lose.