In periods of economic downturn, the Art market has always shown some kind of resilience (e.g. 2008 financial crisis), however, the global pandemic of Covid 19 has challenged the industry in a very different way. The following analysis was conducted by Dr. Clare McAndrew and published under Art Basel & UBS, which set out to explore the impact of COVID-19 on the art industry, specifically the gallery sector. Focusing on the first 6 months of 2020, the analysis began in July and had diverse approaches. To grasp the gallery dimension, a survey was conducted on modern and contemporary galleries across more than 60 countries, gathering a total of 920 responses. Furthermore, the report also seeks to understand the perspective of High Net Worth collectors present in the three major Art hubs (USA, UK, HK) with a focus on how the pandemic changed their behaviour - 360 collectors were questioned.
1- Gallery Status and employment trends
93% of the galleries closed their premises temporarily between January to July 2020, with an average closure period of 10 weeks (from 5 weeks minimum in South Korea or Sweden to 14 weeks in the US). In a post covid world, and similarly to many other businesses, galleries must follow strict regulations and social distancing policies, considerably changing their way of operating (e.g. reducing visitor capacity, on request appointment, remote working, curation of exhibitions). From the galleries surveyed in July that were closed, 45% had deliberately chosen to remain temporarily closed as a strategic move.In the past 6 months, many galleries have had to furlough or cut their staff in response to the COVID-19 pandemic. Based on the galleries surveyed, ⅓ downsized their staff - the largest share being the galleries with turnover between $250k-$500k. On average a downsizing gallery lost four employees with half being in full time positions. Africa (42%) followed by Germany/Spain (38%) and the UK (36%) were the geographical areas to incur the largest downsize. Looking forward, most galleries expect employment to stabilize for the 2nd half of 2020.Back in 2019, galleries’ key focus was their art fair exhibition and expanding their client base. As we expected, the market dynamic changed tremendously with an enormous focus on cost cutting, online presence and preserving client relationships in order to survive.
2- Sales in the Art world
Overall sales in the industry were under pressure. However the gallery sector remains one of the most stable compared to auction houses.
Looking at the data, we can see that many businesses are continuing to trade, however values/volumes have declined. Galleries announced a drop of 36% on average compared to 2019, with mid-range galleries reporting the largest decline (47%). What is quite interesting here is that it is the same mid-sized galleries that were impacted during the global financial crisis of 2008, the rationale behind this is that their collector bases are simply more impacted by economic downturn than HNW and UHNW. In terms of geographical split, galleries in the UK and the US were on par with the average drop while France reported slightly better results.Based on the galleries surveyed, most of them expect a decrease in the future with an extremely conservative outlook for the end of 2020. Indeed, the classic business model of galleries is being fundamentally challenged - discretionary spending, heavy travel and in person contact - requiring them to boost creativity in their way of interacting with collectors, while thinking strategically about cost saving initiatives.
B- The online Art market
Online sales reached 37% in the first half of 2020 compared to 10% in 2019. The art market transition online was key to cope with the exceptional circumstances we are living in. What we see is that blue-chip galleries adapted their business model efficiently and account for 38% of online sales. To note, in 2019 the same bluechip galleries were the lowest in activity on the online scene. 26% of online buyers were new collectors demonstrating the power of the online world to gain in visibility and client base. For galleries, the different online sales channels are the following: online platforms directly on the gallery website, social media, email and third party platforms. For Art fairs and auctions, online viewing rooms & online auctions platforms allow these actors to continue their operations in the restriction of physical events. Only ¼ of the galleries surveyed reported making no online sales in 2020. The Art market is finally experiencing its digital disruption - an aspect that was for a long time deprioritised & resisted. In terms of buyers, 29% of online sales was existing collectors that were in contact with the gallery offline. Brand new collectors that purchased online were extremely common for the blue-chip galleries representing 34% of their online sales - showing that reputation is key in online purchasing confidence.
The auction sector experienced a significant drop of 17%. No data was available about this topic as the analysis is focused on the gallery sector. However, we expect to have a similar report very soon in order to understand the impact of Covid 19 on the auction world.
3- Exhibitions & Art fairs
With the cancellation of physical art fairs in 2020, galleries saw an enormous drop in their sales. Indeed, only 16% of the sales in 2020 were generated via Art Fairs viewing room (compared to 46% in 2019). Again here, most galleries expect a decline in the second half of 2020 with very sceptical views on the art market outlook. To note, Art fairs also constitute one of the biggest expenditures for galleries, hence the cancellation of such events balanced the drop in sales. We recall that in 2019, according to the Art basel report, on average 29% of galleries’ total costs was invested in Art fair participation. Online viewing rooms appear to be a good alternative to replicate the sales /experience of physical events. From the galleries surveyed, 67% used art fair virtual exhibitions as a means to sell. 33% are highly sceptical about this strategy and require heavier investment in tech and user experience. In terms of galleries exhibitions program, out of 7 exhibitions, 3 were cancelled in 2020. Looking forward to 2021, the number of exhibitions will be slightly reduced compared to previous years. Also, galleries planned to reduce the number of fairs they will participate in 2021 (average dropping from four in 2019, to three).
5- Supports & Strategies in the Art world
A- Collaboration between galleries
Dealer associations have been extremely active in the first half of 2020 to enhance collaborations in these exceptional circumstances. In the US and the UK, many initiatives were undertaken by Dealer associations to offer more resources to provide support, information and alignment concerning the reopening and cross-collaboration across art actors.
Huge investments were made in new technologies to enhance the online presence and offer an innovative collecting experience. Virtual reality, 3D imaging and augmented reality were the least used tools as they are the least accessible but would be a game changer for the industry transition. Enormous hopes are in tech-development to ensure the flowrishment of the online art sector and most importantly in its democratization in terms of accessibility (e.g. prices, usability …).
C- Support Measure access in the Art world
The most common forms of COVID-19 support that galleries reported accessing were grants, subsidies, or other emergency funds provided by governments. However, galleries were under heavy pressure and had a lot of difficulties accessing public aid due to the high level of bureaucracy and paperwork.
In 2019, galleries' key priorities were to focus on art fair exhibitions and widen their geographical reach of their client base. Today the goals are very different. In a COVID world galleries want mainly to focus on maintaining their relationship with existing art collectors and adopt a cost cutting approach to ensure profitability/survival. Online strategy will be key to boost sales and connect with their clients, while investment in technology will be a key differentiating factor. Furthermore, similarly to the general public awareness, many galleries will also focus on the sustainability aspect of the art market (e.g. reducing carbon footprint). Indeed, this has become one of the top priorities in 2020 (with 58% of the respondents compared to 29% in 2019).
6- Art Collectors'perspective
High Net Worth Individuals remain active in the Art world. In terms of distribution, more than a half invested over $100k in Art & collectible and 16% spending over $1Million. Online viewing rooms and online platforms were used ⅓ by collectors to acquire a piece. Instagram was also a powerful channel for sales accounting for 32% of the acquisition. Today, collectors expect more transparency from the artworld, stating that it is essential to have price information online while browsing through the net. The pandemic environment had pushed collectors to continue investing in Art with a true willingness to expand their art collection.
To conclude, galleries are in a particularly vulnerable position and will obviously experience a decrease in sales in 2020. This year will be a challenging year for all art actors and the overall expectation is that a significant number of galleries will permanently close. To survive and succeed, galleries will have to rethink their business model and adopt a strategic approach for cost handling, online presence and clients relations. They will have to be creative and innovative in order to differentiate themselves, especially true for mid size/smaller art actors. Indeed, we expect the gap between blue chip and mid size/smaller galleries to continue widening, as most HNW collectors will continue to support their favorite galleries only reinforcing the status quo and making it even more difficult for newer/younger galleries to exist. However, on a positive note, we do believe that Art will always be part of our world and we will thrive this crisis together! At Convelio, we will always ensure to deliver the best service to assist art dealers in their operations and are continuously developing the right set of tools to help the Art world transition online!