There is a lot of money to be made selling art. TEFAF (The European Fine Art Foundation) last month announced the global art market broke all records with 2014 sales in excess of 51 billion euros or close to $56 billion at current exchange rates. Numbers like this conjure up reading a headline that describes the purchase of a Rothko for $56 million or Sotheby's dropping the hammer on Giacometti's $100 million "Chariot". With a combined overall market share of around 25 percent, Christies and Sotheby's continue to be the alpha dogs in the pack of art purveyors. Of the 1530 works that traded hands in 2014 for over 1 million euros, these two houses have near monopoly status with 94 percent of that traffic. Minor leaguers such as Bonhams, Phillips de Pury, and a few others claw over remaining scraps.
For all the theater and glamor of a tuxedo Dom P.-filled fall evening sale at Sotheby's or Christie's where oligarchs are prepared to wire transfer deca-millions, it is the auction house itself that feels pinched. Sellers of multimillion-dollar paintings and sculptures pit Christie's and Sotheby's against each other in bidding contests. Auction houses often must offer a guaranteed minimum price to secure the business for masterpieces. On the aforementioned Giacometti "Chariot", it was Sotheby's who was the guarantor and, per The New Yorker, it is possible if not probable the bonded amount was greater than the gavel price plus buyer's premium and Sotheby's took a loss on the deal. It becomes ironic that the centerpiece of the auction and one their largest transaction's ever, possibly lost money.
Competition for Middle Market
For all the cachet of the upper strata of the art market, this segment is a highly competitive business and by no means carries a guarantee of success. While not an insignificant part of the auction marketplace, there are other avenues that are growing and much more predictable as generators of cash flow. The so-called middle-market as defined by TEFAF concerns price-tags of $1,000 to $50,000.
The online auction arena is rapidly growing. For Christie's it offers opportunity to be a more full-service well-rounded company. The numbers of players competing in this space seemingly expands, like our universe.
The 2014 TEFAF figures showed this area with least 3.3 billion euros or 6 percent of all transactions. Christies e-Commerce chief Brian Shaw explained to me that in 2014 Christies held 78 online-only auctions compared to only 4 in 2012. "At one point we had 18 online sales happening simultaneously." The format is analog to Ebay where bidding lasts for a week or so and ends at date and time certain. Overall, in 2014, there were over 1.5 million total visitors at these Christie's auctions. Many sales attracted 20 to 30 thousand or more unique visitors.
"Having a significant online presence allows Christies flexibility when handling large diverse estates with many niche collections of varying quality and value, be they paintings, sculpture, or furniture", says Jessica Phifer, Christies vice-president and head of the Houston, Texas office. She added, "It allows us to explore in certain esoteric or niche areas that may not have compatibility with the live (auctions)... recently, we sold a meteorite online."
In March 2015, in conjunction with a live auction for Asian art where 23 items fetched in excess of $1 million, an online sale, from the same estate, sold 274 of 274 lots offered with 74 percent achieving at or above high estimate and drew an astounding 86,776 unique visitors from 96 countries. There was an average of 29 bids per lot. The sale total was $2.43 million and was 543 percent value above the low estimate.
Does the success of this sale suggest that the internet with its tentacle reach of millions worldwide, imply that this mass exposure tends to raise prices? Ms. Phifer conjectures that the much wider exposure helps create a more robust and deeper market by having more bids. For example, if an artist has traffic at the $5,000 level, the number of bids will be greater with that many more eyeballs; more paintings get sold and that creates a market with stable benchmarks for comparison. She is ambivalent whether prices of the art rise. I disagree, in that axiomatically, the more players competing for the same golden apple, the dearer that apple becomes.
While live auctions will probably always remain the soul of Christies, I predict online has the potential to grow by orders of magnitude. Buyers will most always want to see and inspect an object that costs millions of dollars. But the advantages of internet-based sales are enormous. First, they take up no "real estate". There is no showroom tied up for weeks of viewing in Rockefeller Center in New York or Kings Road in London. Cost savings from an ability to conduct multiple internet based sales simultaneously in a simple control room is vastly less expensive than showcasing art in the most expensive location in New York City.
Some online sales rely only on online catalogs. While the meticulously elegant very expensive printed brochures are necessary and a hallmark of Christies marketing campaigns, perhaps in the future, in select cases, the necessity for print versions will be diminished saving millions of dollars.
Online sales are highly profitable. The auction house makes 25 percent from the buyer and 10 percent from the seller. There is little haggling with consigners over a 5 or 10 thousand dollar piece of famille rose Chinese porcelain. A 35 percent margin is as good as it gets. Also, often live auction merchandise is required to travel for exhibition prior to the big event. Logistically cumbersome, expensive, and time-consuming, online affairs are not burdened with this formality.
The Role of Social Media
As the world inexorably grows more dependent on mobile devices, it only makes sense that art gravitate in that direction as well. For younger generations already literate in the digital world, purchasing art online is an easy threshold to cross. The first step is getting an art education that social media is happy to provide. While there is any number of blogs to be followed, it is Instagram that may be having the most impact. Follow the pictures of artists like Richard Prince or Jeff Koons. Do their paintings move you? Follow the cutting edge White Cube Gallery or Gagosian Gallery. What about Simone de Pury? These are but a few of the "tastemakers", the "influencers" trying to shape views. World class art on your phone... if nothing else this is raising awareness. It is establishing a dialog that may be new to many.
There was an earlier discussion that the online venue is a middle market with a sales ceiling threshold of $50,000 or so. Recently Christies sold a painting by a well-known artist online for over $900,000. In 2014, there was a handful of other transactions that breached the $100,000 mark as well. Lesson: with a prominent artist who has a long history of previous trades, a purchaser can get the comfort necessary to pull the trigger for big ticket items. An example might be something from Andy Warhol. He turned out thousands of works and each niche probably has a significant track record of past sales to determine the reasonable value.
Some Other Competing Platforms
There is a plethora of much smaller venues peddling art via the internet. Barriers to entry, other than whatever startup capital is required, are nil, but success is elusive. The conundrum in this arena is somewhat of a chicken and egg equation. In order to generate demand, there must be a supply of good art. Sellers only want to do business at the restaurant where the diners are lined up around the corner.
Berlin-based Auctionata holds live auctions two to three times per week with bidding done live online. Over the next month, a potpourri of offerings from classic cars, to jewelry, to wine, to watches, and paintings are coming. Each auction total sale estimates range from 250,000 to 2 million euros. Average lots are less than $10,000.
Paddle 8 hosts primarily charity benefits auctions with Ebay-style date and time certain bidding termination. The price points are mostly well under $5,000. Paddle 8 has a heavy duty list of venture investors that "represent the intersection of the art world with fashion, media, and luxury". Art world notables Damien Hurst, Alexander von Furstenberg, and the Mellon family are some of the well-known backers.
Invaluable (invaluable.com) is another Ebay format platform. There are literally thousands upon thousands of items being hawked under categories such as Jewelry, collectables, furniture, Asian art, fine art, decorative art, autos, boats, and Airplanes, guns, and wines. Almost exclusively moderately priced, I saw many items under $100.
There is a website called 1st Dibs which is an aggregator of smaller galleries, wholesale dealers, and other mom and pop venues unable or unwilling to invest the funds for their online presence. This business has been around since 2001 and has gained its credibility by vetting its vendors very carefully. Being allowed entrance to this site is a certificate of authenticity. From the inexpensive to objects well into six figures, 1st Dibs deals in art, furniture, jewelry, watches and more. The site connects buyers and sellers who make their deal.
Finally, there are sites that plan to enter the space. I found a small Hong Kong-based public company called Interactive Multi-Media Auction Corporation (symbol IMMA). The website is interactive-auction.com. The company has zero revenues and yet has a market capitalization of around $70 million. Perhaps this is testament to the outlook on potential in the e-Commerce art space. Their first live streaming event will be in San Jose, Mexico in November of this year.
Conclusions
The economies of scale of the online format are apparent. The vast audiences drawn to purchasing art from internet platform demonstrates the democratization of collecting. Anybody with a mobile phone has access. Christies and others now have access to this vast untapped world of the emerging collector. Establishing that buyer and getting him or her hooked is the goal of all the competitors. Go get 'um.