How Coronavirus is Impacting the Art Market
Basic Economic Theory
The artworld is a part of the luxury market. Its activity is heavily influenced by the portfolio performance of its buyers, who tend to be high net-worth individuals. As the world’s economy is coming to a standstill, financial markets are crashing, and so are profits. This generally means that whatever spare cash people might have, they are going to hold on to it.
Art sales have dropped as global consumer confidence has wavered. This is a direct consequence of the phenomenon known as the wealth effect: people tend to spend more money when they’re making more money and spend less when they’re making less.
Even prior to the Coronavirus outbreak, sluggish economic growth in Europe negatively impacted the art market. The Fine Art market, which is dominated by auction sales, saw a decline of 8%. In the UK – the largest market in Europe – the decline was a whopping 17%. Sales at the top end of the contemporary art market were also falling: 2019 was the first year that saw the leading top-end galleries have a drop in sales.
The United States has traditionally formed the biggest share of the art market, both in terms of auction houses and galleries. Given that the US is now the hardest-hit country by COVID-19, it looks likely that commercial activity in New York, the epicentre of the art market, will be suspended for months. This will have a detrimental effect on the art business and may move the epicentre of physical art trades to Asia, perhaps to Hong Kong.
Not only will the top end of the art world, which is closely linked to high net-worth individuals and corporations, begin to contract, the notoriously struggling grassroots segment will also be hard hit. Lower demand will lead to a reduced consumer base, making it difficult for emerging artists. It seems that there will be limited government or private funding to support those who are essentially self-employed individuals.
Art fairs have come to be integral to the art market’s ecosystem. Being unable to hold these events will make a huge impact on the top end of the market. The Art Basel fair was cancelled, followed by the Hong Kong Arts Festival, which ended before it could get started. Christie’s and Bonham’s made contingency plans and postponed their sales at the aforementioned events.
Being unable to meet art dealers face-to-face and interact with gallerists will serve a significant blow to galleries. Even if this blow is temporary, we don’t know how temporary the repercussions will be. Meeting new clients is critical for dealers, who, on average, need to gain 50% more new clients year on year in order to turn a profit (according to The Week In Art magazine).
In recent years, galleries have struggled to keep pace with the financial pressures of showing up to art fairs. As of last year, the number of international art fairs rose to 300. The majority of fairs are held for the host city’s residents, which suggests that after the pandemic, the market concentration of leading galleries will increase. On the other hand, it is possible that we will see a more dramatic reorganisation of the art world.
The Market Transition to the Online
The increase in online purchases made by both high net-worth individuals and large corporations indicates that the online market place will continue to be paramount following the end of the pandemic.
COVID-19 is likely to have lasting implications on traditional auction houses’ business model. Once people get into the habit of spending large sums online, there is no going back. It is inevitable that high-end art sales will be forced online and that the market will evolve. It is remarkable that it may take a global pandemic to bring about real change and upend one of the world’s most sedate business models.
Despite rapidly growing sales over the last 10 years, the art market still lags behind other industries when it comes to online sales. As the aggregate art market fell in value, the share of online sales from total sales of art and antiques was essentially unchanged year-on-year at 9%.
Traditional offline auctions have been moving more of their sales online. Despite a fall in sales overall, both Christie’s and Sotheby’s have seen year on year increases in online sales. The lower-priced end of sales has traditionally dominated the volume of sales online. Despite the evidence of increasing collector willingness to buy high valued art pieces online, this is likely to come to a halt in the current economic climate.
As various internet dealerships are forced to close shop, there is evidence that the online marketplace is oversaturated. However, this may be simply due to the quality they represent rather than a general unwillingness to buy art online. We might also see people switching to inferior art due to an unwillingness to spend a lot of money. The knock-on effects might result in a collapse in prices across the entire art market, as galleries may become desperate to get rid of stock.
There is a proliferation of online platforms for buying art. Artfinder, for example, helps connect buyers with independent artists. The quality of the art pieces on these platforms, however, tends to be low, deterring high net worth individuals. Institutional investors tend to buy art as an investment and thus prefer big names to help verify the quality of the art.
Nevertheless, the increase in online purchases made by both high net-worth individuals and large corporations indicates that the online market place will continue to be paramount following the end of the pandemic. For many artists, this could serve as a golden opportunity to sidestep traditional intermediaries. Artists can use the internet to create syndicates and share their resources to compete with galleries. They can further level the playing field by marketing themselves online via search engines; perhaps this might be just the right time to buy a .ART domain! Considering how many individuals are stranded at home right now, interiors might take on a new level of importance, encouraging a rise in demand for affordable art.
The aftermath of the Coronavirus may see the art market move away from its ‘elitist’ label. Before COVID-19, high-end art already saw reduced sales. Considering that art fairs are on pause right now, the established segment of the art world is likely to see a further decline. The suspension of physical interactions means that the majority of art activity will move online, excluding elderly collectors who might be unable to participate in the sales. Younger collectors are more willing to buy art on the internet without being pedantic about seeing it in person.
The long-term effects of this trend are hard to predict; it will either diminish the market power of established galleries or reinforce it, but one thing for certain is that smaller galleries will be hard hit.
The proliferation of online sales sans traditional galleries acting as middlemen will allow for more independent artists to break into the scene through unconventional means. There are also possibilities of price distortions. The internet will be the only medium for art sales in the coming months, which means we might see a more egalitarian art market. As the global economy slows, collectors are likely to want to search for more affordable art. And, due to a wider pool of artists, prices might decrease, leaving a lasting effect of moving art out of the luxury market.