Auction or dealer? The art market model is changing

Fine Art Bourse (F.A.B.) challenge the centuries-old auction model with an innovative fee structure and wave away various add-ons like the Artist’s Resale Right and VAT by bringing the hammer down in Hong Kong.

Simon de Pury launches his new online action model at Ely House, the Dover Street headquarters of Mallett in London’s Mayfair, where stablemate Dreweatts have already christened the building as an auction centre with the Pete Waterman sale… and where Mallett themselves, dealers of 150 years standing, will hold their own inaugural auction on July 7.

Only five days ago, Chicago auction house Leslie Hindman announced the launch of LH Exchange (LHX), a new retail online platform connecting buyers and sellers.

These are just the latest in what is becoming a long line of art market professionals blurring the line between traditional methods of business.

Online auction houses, dealer portals and other routes to market

Where once we had dealers and auctioneers – with never the twain meeting except in the individual world of coins, medals and stamps – now we have a growing range of routes to market, with many offered from the same outlet.

Traditional auction houses, online auction houses, online auction platforms, dealer portals, galleries with websites promoting bricks-and-mortar sales, online-only dealers occasionally exhibiting at fairs, auction houses pursuing private treaty sales, dealers holding occasional auctions… the list goes on. And within these, subtle tweaks to marketing and method of transaction add their own unique twist.

What’s behind it all? Is it a good thing? And what does it mean for the market, especially the buyer and seller?

The answer to the first of these questions is threefold: technology, opportunity and margins. Businesses simply couldn’t adapt successfully in this way even five years ago because even if the idea was there the technology to support it wasn’t. Many an investor and trade professional burnt their fingers 15 years ago when the first phase of internet commerce dazzled them and sound business principles – and plans – were cast aside in the rush to the flame; a case of more heat than light.

Even today there are some highly questionable business models out there, and my guess is that even a few of the best-known names in the market will not survive their ill-thought-out cost structures.

As I have argued before in Antiques Trade Gazette and elsewhere, the glamorous world of high-priced international art auctions grabs the headlines because of the vast sums changing hands, yet cut through the glitz and the profits all but disappear.

The challenges facing Sotheby’s and Christie’s

This is the conundrum facing Sotheby’s and Christie’s as they replace one management team with another. They need to continue cultivating an image of extreme wealth and luxury while – in Sotheby’s case, at least – explaining to their shareholders why they are getting so little in return for their investment.

Fine Art Bourse's auction house dandies video sets out to challenge the traditional auction house market and disrupt the market as it sets out its new business model.

Fine Art Bourse’s auction house dandies video sets out to challenge the traditional auction house market and disrupt the market as it sets out its new business model.

There are only three ways to go when your cost base is high and your margins are low: cut your costs; find new ways to make money; or do both.

No surprise, then, that the duopoly ensured they got a head start around a decade ago in targeting the private sales market. Although that source of income has dipped in the past few months, in the long term it has mushroomed, explaining the huge investment in gallery exhibition space under the Sotheby’s and Christie’s brands in places such as New York, London and Hong Kong. Together, they are the world’s biggest dealers today, as well as the biggest auctioneers.

Private treaty sales are undoubtedly helping to boost profits for auction houses across the globe, but a safe future means diversifying even more; hence the development of financial services, brand licensing and other money-spinners.

All this means that dealers have to be on their toes too.

Strategic partnership opportunities for Stanley Gibbons Group

The Dreweatts/Bloomsbury/Mallett axis is more than simply a list of diverse brands brought together under the umbrella of the Stanley Gibbons Group. It is the embryo of the sort of strategic partnership that promises to transform the international art and antiques industry as it frees each segment of activity from the restrictions of its traditional metier and capitalises on the talents and assets of its fellow interests.

Handled well, this really does have the potential to be more than the sum of its parts and to maximise value at every point.

Even relatively small dealerships have the opportunity to exploit technology and strategic partnerships with auctioneers and web platforms, realising their full potential in terms of prestige and profits without excessive outlay.

Is all of this change a good thing?

If it leads to innovation, more efficient business practices and more effective financial returns on investment all round, then broadly I would say it must be.

Why do I hesitate slightly? The matter of transparency.

Balancing analysis, transparency and discretion in the art market

As art dealing go online and behind closed doors, it makes it harder to track performance for those trying to analyse the market and it raises the risk of dubious practice as well as suspicion among the public and the authorities.

On the other hand, if auction houses and their charges have been the bane of dealers’ lives for decades, auction price exposure online has joined them in helping to raise the trade’s blood pressure. The extreme candour that the internet has brought to most auction sales reporting has not made it any easier for dealers to negotiate with their clients.

So it is important to strike a balance between acceptable discretion, needed to oil the wheels of commerce, and comprehensive reporting, essential for confidence in, and an accurate view of, the market for those who wish to operate within it. Most importantly, we must not forget the interests of buyers and sellers as we strive to protect those of art market professionals. Many of these new business models, such as Hindman’s LHX platform and F.A.B.’s cut-price fee structure, are clearly customer focused, simplifying the route to market to attract a much wider reach and capture dollars that have so far escaped the tidal wash of the international art, antiques and design market.

Ethics and judgment are key to the future of auction houses and dealers

Taking all of the above into account, I think we also need to relax a little. Dealers will continue to have a beef with auctioneers for all sorts of reasons; auction houses will remain fiercely competitive with each other; special interests in the curatorial and academic worlds will pursue their often curious campaigns against what they see as the unacceptable world of art commerce.

Businesses need to plan properly and temper their ambitions with cool dispassion. They need to assess their activities honestly and objectively to ensure that they behave in an ethically acceptable manner. If they do that, then we should have little to fear from all this innovation and breaking down of barriers.

Some trade professionals believe that clear demarcation between dealers and auctioneers should be sacrosanct, but actually most of the public not only couldn’t care less, but don’t actually understand what that difference is anyway.

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IvanMacquisten

Welcome to my new website. As a journalist of 30 years and art market analyst, pundit and campaigner for the past 17 years, my interests are many and varied.

My role as Editor of Antiques Trade Gazette for the past 15 years has afforded me rare insight into the mechanics and issues of the international art and antiques market, and I have been privileged to work with some of the most interesting and intelligent people in business today.

My aim with this blog is to continue my work observing, analysing and commenting on the international art and antiques market, as well as on other spheres that interest me, such as politics, the law and finance.

I hope you find what I have to say interesting and entertaining, and I will attempt not to bore.

Read all about me on this website’s profile page and see the wide range of services my business offers, from Business and Brand development to Reputation Management and Editorial Services. Plug over… I will stick to topical items of interest in future.

Ivan Macquisten