In 2018, Sales in the global art market reached $67.4 billion with a volume of 39.8 million of lots sold, its second-highest level in 10 years. Since 2008, the industry has experienced a CAGR of 9%. The US, the UK and China remain the most important markets, accounting for 84% of the global total value. This was led mainly by an important increase in sales from dealers and the online market. (Find out more about the online market outlook here).
Sales in the US reached $29.9 Billion in 2018 the highest recorded level to date. The relative ease of art cross-border movement, the very few restrictions on imports and exports and the NYC buzzing lifestyle created the perfect environment for a vibrant Art Scene. As the author Jean Gabriel Fredet stated in his book “ Sharks, Poodles and other mystificators”, the US managed to create its art scene thanks to its openness to postwar and contemporary art. Its History and its multicultural identity allowed the US to embrace new Art trends in a way that neither Europe nor Asia could.
Surprisingly, although Brexit creates a climate of uncertainty, London remains the most important art scene in Europe with consistent sales rising by 8% compared to 2017. Contrary to popular belief, the UK Art market with or without a Brexit will remain strong. The UK has always acted as en entrepot serving at a low cost entry point of sales in Europe. London’s art market was built on its cost efficiency. Although the UK-EU trade agreements are completely blurry and yet to be sorted, London Art scene will not suffer - at least for bigger businesses. To know 85% of the Art trade value are non EU-trade. Although the exit of the UK could be interpreted as an opportunity for countries such as France or Germany to take the lead on the art & collectibles scene. They will definitely struggle to compete against the British market ( e.g. The UK will have complete freedom to reduce its import VAT making it more competitive than other regions). Furthermore, Europe positions itself as less attractive than the UK due to an overregulation of its art & antiques, its tax complexities and compliance to transact e.g. Europe repeatedly missed the chance to be a thriving art market. For instance new regulation for import of cultural goods of more than 250 years old from non EU-countries that intensify the complexity of the import procedure hence deterring trade. Hence there is a real risk that once the UK leaves, high value trade in art could just bypass the EU.
Concerning Asia, China is experiencing a small decline this is mainly due to a reduction in high-quality works supplied accompanied with raise of cautiousness from buyers - as trade tension arises with the US and a serious slowdown in its economic activity. Although the Chinese government reduced import VAT to 1% in 2018, they decided to increase the national taxation to 17% hence inhibiting any stimulus. China & USA trade war creates strong economic uncertainty making the whole world shaking. Although we expected that the trade tensions will blow off by April 2019, it is today at the climax of political tensions - we believe that this will certainly impact the Art World results in the coming year.
Dealer sales reached in 2018 a total of $35.9 Billion. The strong performance of this segment continues to be driven by high end dealers of the market. Concerning the future of the market, dealers have mixed views about the market performance with slightly less optimism than previous years. Modern art dealers have by far generated the highest value in terms of sales and growth with 17% year on year. This segment is followed by contemporary art. The decorative art and antiques which although had a lower value in terms of sales has experienced an important growth with 18% year on year.
The main difficulty for dealers remains to find new buyers mostly for high-end artworks. ‘Art buying on impulse’ behaviour doesn’t exist anymore as high-end collectors are willing to wait longer to find very specific works. In the other tiers of the market, millennials collectors have a completely different buying patterns. Indeed, the ‘amazon generation’ are more impulsive and adopt a more bullish style. With millennials we can really talk about passion investment that relate to a more emotional side. Another concern of the dealer market is the serious lack of financing structure and credit support. The market is populated by a really small number of businesses achieving really high profit while a large majority is still struggling to break even. Private investors and large public subsidies are their main sources of financing. Getting debt from a bank is nearly-impossible and in the case of volatiles sales this can be a real game changer. In all sectors, the majority of dealers had net margins varying between 10% to 30%.
Dealers can either own the stock they sell, work on a commission or sell on consignment. Half a decade ago, most common business model was similar to a finance strategy “ buy low sell high” - sourcing pieces from sellers that needed to access cash quickly and selling at a higher price. The majority of dealers relied on the auction market as a source of “undervalued” lots to obtain and to resell with higher margin to private collectors. However nowadays, this type of strategy is no longer sustainable as the balance of power completely changed between actors. Auction houses relationship with private buyers is today stronger than ever. This dynamic reversal completely prevents dealers to profit from mispricing arbitrage with an overall increase in transparency.
The art market can be divided into two sub categories: primary (first time sales) and secondary (resale). Secondary market dominates in terms of value where the highest prices are achieved. Dealers working uniquely on the primary market generated less turnover compared to those working in the secondary market. The primary market has its own economics. Indeed, on average 42% of the value created by a gallery is generated by one leading artist. This is mainly due to the lack of information faced by buyers which creates a significant degree of risk. Indeed, the primary market is populated by less-established artists some not yet 'validated' by the market. It plays a crucial role in developing an artist’s work and its price line - law of demand/supply. Exclusivity contract, which used to be extremely popular in the past, is less common today. The primary sector tries to consolidate its market by engaging in cross galleries collaboration. This increases considerably an artist visibility. The secondary market has a very different dynamic. For instance, most lots are sourced via auction houses or intermediaries. Trading (buying and selling of a piece) takes place more often. When a work passes from primary to secondary, it signals that it has achieved a higher price and has been somehow validated by the market - to note this is extremely rare! An important trend in recent years has been blue-chip galleries superior performance while many galleries middle/lower-end galleries are struggling to survive. Many believe that this phenomenon is due to adverse selection - meaning that top-tier galleries have the luxury to cherry-pick their artists leaving lower tier struggling.
Overall, the art market has an important gender gap in terms of female artists' representation. Female artists are largely underrepresented, however since the past decade they are getting more recognition for their works. For instance, it is stated in the Art Basel report that the share of women in global exhibition has grown from 25% in 2000 to 33% in 2018. Gender imbalances in the gallery market are no exception, female artists were highly overlooked in the past because of their lack of commercial success.
The auction sector is categorised into different price brackets. High value lots are concentrated in top-tier businesses. For instance, more than half of the value of global sales is generated by the 5 main players: Christie’s, Sotheby’s, Poly Auction, China Guardian and Phillips. Where Christie’s and Sotheby’s have a strong duopoly as they account for 40% of the value generated. The rest of the market is populated by mid-large cap entities that are dominating national markets (e.g. ArtCurial in France or Cambi in Italy). Auction houses in addition to propose Fine Art & Collectibles for sale offer a wide palette of various luxury pieces e.g. from Real Estate, Car, Wine, Jewellery or Handbags. Typically, the percentage that an auction house charges aka the buyer premium is typically between 25%-27% for well established houses. In the auction world, exists two types of sales: private and public sales. Private sales are auctions reserved to a limited number of individuals. Furthermore, most of the revenues in the auction world are generated from sales of important family collections e.g. Peggy Guggenheim or David Rockefeller or Barney A. Ebsworth collection.
Auction results from public auctions (excluding auction houses' private sales) reached $29.1 Billion. The three largest markets remain the US, China, and the UK which combined account for 88% of the market result. In the US, auction sales have best perform and continue to experience important growth (increase of 18% yoy.). Sales in the UK remained consistent with a steady growth yoy. of 15%. Similarly to general trends in the Art market, China auction results declined by 9% with the highest rate of buy-ins (57%). To put into context, a buy-in is when a lot at auction doesn’t reach a certain threshold and is directly bought back by the auction house. This is a guarantee to the clients that once consigned the lot will be sold (for sure) and at a certain price. To note, a buy-in has a negative correlation on a piece value - again law of supply and demand.
In 2018, Post war and Contemporary sales accounted for half of the fine art auction market results which approximately represents $7.2 Billion. Modern art has still some momentum with a second year of strong results. On the other hand, impressionist/post-impressionist and Old Masters sector experienced a serious decline in 2018.