The Art Basel Market report 2019 - Part 2

Our favorite annual report about the Art market is out. Discover the key takeaways of this report and our views on the Global Art Market 2019 part 2.

5- Art Fairs

In the 21st century, Art fairs redefined the concept of collecting. Intended as a place for dealers, collectors, and connoisseurs of art to meet, this exhibition-based event has grown into an international phenomenon. Art Fairs sales were estimated to reach $16.5 Billion in 2018. International Art fairs are becoming more and more popular and represent an important source of revenue. Today, more than 300 Art Fairs exist internationally with thousands of smaller regional and local all with a wide variety of specialisation. In 2018, dealers reported spending approximately $4.8 billion attending and exhibiting at fairs. Art Fairs allows dealers to gain in visibility and open their network. It is seen as a crucial part of the art world mechanics and is essential for the wellbeing of their business. On average, a dealer will attend 4 art fairs per year. In the past few years, the art world has experienced a proliferation of international fairs e.g. 1-54 International Contemporary African Art Fair lead by Touria El Glaoui or Art Central in Hong Kong. 

6- Online Sales and the Art world's digitisation

A- Online Marketplace & Social Media

In 2018, global sales in the online art market reached $6 Billion. The Millennials remain the most important target market of e-commerce. 93% of the ‘Amazon Generation’ of High Net Worth (HNWI) collectors reported that they had bought art from an online platform. Based on the Art Basel report, the majority of the online companies tend to sell lower value pieces ( $5000 <). Linking this to Hiscox Online trade 2018, it is true that building trust online is a critical point for online platforms and only well-established names are managing to sell upper end lots. For instance, major auction houses such as Christie’s and Sotheby’s generated around 19% of their annual sales online with around 74% through third-party platform. Top tier businesses are trying different strategies and investing large amounts of money in innovation and digitisation. Taking the example of Sotheby’s, first they tried a 0% buyer’s premium for its online-only sales in order to acquire a new client base - which worked. Secondly, they acquired Thread genius  an artificial intelligence (AI) start up that improve online customer experience - which was an excellent move. Social media in today’s business model is an essential tool that need to be leveraged. Not only Instagram is today a tool to increase an artist’s visibility but also is considered as one of the major channels to achieve a sale e.g. ArtPrice online report does a thoughtful and relevant analysis of its use (link here).

B- Digitisation equals Democratisation

We believe that the proliferation of online art platforms clearly opened the market to a new segment of buyers. The appearance of such businesses demonstrates a clear willingness to disrupt the sector. According to Christensen, a disruptive innovation is the process by which a sector that used to be limited to a few because either its services were complicated and expensive is transformed into a service much more simple, affordable & convenient that can hence serve many. In the case of the Art world, this is exactly what is happening with a clear democratisation of the industry. 

C- Data is gold

Another direct effect of this phenomenon is the injection of information in an opaque world. Indeed, Technology brings transparency to the Art world: pricing, collectors patterns, transactions …  Although many would think that this would negatively impact the Art market in terms of revenue generated and pops its golden bubble (as we are actually able to trace back prices and ‘estimate’ a piece actual value), actually it has been demonstrated that on the contrary it could create even more value for the industry. Indeed, as Sam Orlofsky, a Gagosian director stated “We’re realising that we may be leaving business on the table by being so opaque and impenetrable.”.  Alternatively we believe that the availability of such data can support companies in their strategy. For instance many auction houses are now developing a Business Intelligence team in order to collect, analyse and translate these data into actual insights. 

D-  Blockchain in the Art World 

In 2018, Blockchain’s application in the Art world created a lot of traction. Several ways to apply it were discussed as new business models appeared. For instance, blockchain could be of a great use in everything related to cryptocurrency and Initial Coin Offering alternatively it could have been used to trade on artworks with the model of fractional art ownership…  Although all these topics seemed very exciting at the time what we see nowadays is that in practice the stickiness of this technology is extremely limited.  For instance, the tokenization of Art that Maecenas decided to launch with its ART tokens in 2017 was a success with the sale of an Andy Warhol pieces ( $6.5M for 49% of the shares). However since then, we see some kind of anxiety/reluctance from Crypto investors and the general public that suffered dramatic losses. Hence you can imagine that tying Art & Cryptocurrency has made this kind of investments looks like a true ‘molotov cocktail’ (risk on risk) - and hence making it less popular. 

7- Global Wealth and Art Buyers

A- Art alternative investment 

Sales in the Art Market are highly correlated with the world economy well-being and wealth. It can be qualified as a cyclical sector which means in time of recession will see its revenues drop. According to Art Basel, art sales since 2000 have shown a correlation with high net worth (HNW) wealth of more than 80%. Similar to the financial industry it is all a question of buying/selling behaviour, risk aversion and market timing. However, it is important to make a precision, art as an asset is perceived as a safe investment and as a great way to diversify your risk (investing in the alternative market) when stocks are volatile.

B-  Global Wealth 

In 2018, global wealth grew by 4.6% to reach $317 Trillion (Credit Suisse, 2018). The strongest growth yoy. was in the US which accounts for 31% of the world's wealth. Europe global share of wealth dropped to reach 27% of the world’s wealth. Concerning the Asia-Pacific region which saw a modest increase in its growth year on year saw its global share of wealth dropped (e.g. Japan with the highest decline in wealth). The Asian region accounted for 36% of the global share of wealth higher than the US and Europe. For reference, Asia represents the most important importer of art and antiques and it has been growing fast during the past decade e.g. Hong Kong liberal trade policies creates a true art hub. 

To note many Ultra High Net Worth Individuals (UHNWIs) are art collectors of varying degrees. To note in 2018, out of the top 200 Collectors in the ARTnews list, 40% of them are passionate UHNWIs' art collectors listed on Forbes. Another important trend mentioned in the Art Basel report is that although the millennials are becoming increasingly more art conscious it is not true in every segments. Indeed, it has been shown that in the wealthiest societies less and less billionaires are investing in Art. This trend can be quite surprising considering the higher level of education of these young professionals.

C- Art Collector Survey 

Art Economics worked in collaboration with UBS to analyse HNWIs’s buying patterns. Obtaining a consistent survey is quite complicated and demand to select the right sample. HNWIs individual surveyed were quite international (UK, Germany, Japan, Singapore & Hong kong) and screened according to their level of wealth/activity in the Art & Collectibles Market. Overall the findings are the following - some are generalities however worth being mentioned-  : 

  • The average collection size across all countries is around 43 artworks with UK being the leading country 
  • As wealth increases the collection increases in terms of volume 
  • UK and Japan purchasing artworks is not based primarily on a strategy of investment or financial criteria 
  • For most respondents the motivation behind purchasing works of art were mainly aesthetic/decorative consideration followed by expression of personality. 
  • Overall, collectors tend to support local artists slightly more than foreign artists 
  • Most frequent channels to buy art and objects are through galleries and dealers followed by auctions. To note in Asia art fairs are extremely popular and highly important in these markets
  • The use of advisors or Art consultancy firms is frequent for millennials however it tends to fall as age increases
  • Overall less than half of the collections are purchased via credit or loaned funds 
  • ⅔ of the collectors surveyed believe that the art market is pretty transparent in terms of information sharing

8- Economic impact 

It is estimated that, in 2018, there are 311K businesses currently operating in the global art and antiques market, which is employing close to 3 million people (this is an estimate and the methodology of collecting these data is highly questionable in our point of view).  The overall gender balance in the Art world is clearly unbalanced with employees predominantly female. In terms of ancillary economic impact, the art market spending turns around $20 Billion. We believe that this number is highly questionable due to the lack of transparency concerning the methodology and the doubtfulness of the data collected. 

Conclusion and our Special view

Based on this report, our understanding is that although the Art Market is slowly democratising  and opening itself to new horizons it is still an elite sector where value is generated from the high-end tier. Blue Chip galleries, renowned auction houses and establish artists are the market makers of the industry.   

For many years now, the sector’s buoyancy was highly reliant on ultra wealthy buyers however the middle class expansion, the gamification of Museum as the 21st century temples and the digitisation of the industry (online platform and instagram) create an increasing engagement with the market with positive effects on most businesses. 

The rise of cultural awareness is also an important part that we think was a bit overviewed in the report. Emerging countries are becoming more culturally sensitive to patrimoine preservation and to the importance of supporting young contemporary artists. To remind us, Art has always been a tool to bring positive change and awareness to the world.  

September 2, 2019