Beyond Numbers: What the latest Art Basel and UBS Global Art Market Report really indicates

Dr. Clare McAndrew, founder of Arts Economics. Image courtesy of Arts Economics.
Geographical Distribution and Annual Sales Turnover 2019 of Survey Respondents. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.
Galleries Top Priorities for their Businesses. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.
Change in Gallery Employment in H1 2020. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.
Sales Channels used for Purchasing in H1 2020. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.
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CoBo Social Market News Reports

Following the release of The Impact of COVID-19 on the Gallery Sector, presented by Art Basel and UBS, CoBo Social Managing Editor Denise Tsui spoke to Dr. Clare McAndrew, Founder of Arts Economics, on what the art market report findings indicate, and the results that were surprising.

 

TEXT: Denise Tsui
IMAGES: Courtesy of Arts Economics

Within the span of only six months, how we eat, sleep, work, and interact with others has been jolted, disrupted and transformed on an unparalleled scale across the globe. Followed by worldwide travel restrictions, geographical border closures and social precautionary measures, the COVID-19 pandemic arrived like a smack across the face to most of us spoilt in our bliss of an ever-connected era. By exposing the weaker links in our social fabric, the pandemic has also sparked a myriad of concerning topics to rise to the fore with ferocious force, from social-economic inequalities and raging international politics to humanitarian issues. On the business front, every industry has been impacted. As we approach Q4 of 2020, new reports are published almost weekly seeking to analyse the extent of damage onset by the virus, and provide near-future predictions for the path ahead. The art world is no different.

Dr. Clare McAndrew, founder of Arts Economics. Image courtesy of Arts Economics.

 

Earlier this month, Art Basel and UBS released a mid-year report, which specifically honed in on the impact of COVID-19 on the commercial art gallery sector. Prepared by Dr. Clare McAndrew, founder of Arts Economics, the report analysed results obtained from two surveys conducted in July: modern and contemporary art galleries (920 responses received, 795 used); and High Net Worth (HNW) collectors (360 responses across the US, UK and Hong Kong).

First glance at the key findings are staggering—overall reported sales contracted by an average of 36% compared to the same period last year; the cancellation of art fairs saw a sharp decline in sales for galleries via this channel from 46% to 16%; and 93% of galleries were forced to close their premises for an average period of 10 weeks—all just in the first six months of 2020.

Nonetheless, while it may be convenient to simply look at the key findings and call it a day, there is value in digging deeper into the 118-page report. The key findings reflect an overwhelmingly European and American perspective of what’s happening—a result of these two regions dominating the geographical distribution of the surveys. Looking beyond these key findings, what the report exposed is the underlying challenge of objectively analysing and representing diverse regions of the art world on a level playing field. Nuances get lost when we too quickly try to summarize. McAndrew spoke to CoBo Social over the phone from Ireland to try and further unpack some of these details.

 

When the Big Players Dominate, We All Lose Out

The geographical distribution included respondents from more than 60 national markets, yet it is vital to note a hefty 59% of the pie came from Europe, including almost 20% from the UK and France alone. The next biggest cut was North America at 19% with the US occupying 18%. Asia, although one of the three big markets, and geographically a competitively large region, formed only 10% of respondents. McAndrew tells me surveys were sent out to exhibitors of Art Basel, through major gallery associations worldwide, and her own network. The problem here, of course, is that many galleries fell through the gap of this distribution method and smaller markets and regions are not able to be fully represented.

 

Geographical Distribution and Annual Sales Turnover 2019 of Survey Respondents. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.

 

“So, it wasn’t by design. Absolutely, I would have liked a bit more,” says McAndrew. “We had a bit of representation from Hong Kong, Japan, Singapore, Korea and elsewhere, but not as much as I would have liked. What’s really needed is a spotlight on particular areas.”

Feedback from South Africa, McAndrew notes, was showing an optimistic focus towards gallery weekends and mini events—something I might add, we have also been seeing more frequently in Hong Kong and is well received. Meanwhile, a comment from Australia surprised her, with the gallery reporting a rise in sales—arguably because their collectors who would regularly swap chilly Australian winters for the European summer have, instead, been home.

The HNW collector survey also gave McAndrew some pleasant surprises. Without question, collectors are an essential aspect to the gallery ecosystem—the lifeline of the sector. Of the 360 collectors surveyed—made up of 48% millennial and 35% Gen X—a whopping 92% reported buying a work of art between January and July this year, among which, 56% had spent more than US$100,000 and 16% more than US$1 million.

“I was surprised there was such an amount of activity, and actual spending levels were quite high as well,” says McAndrew. “There is a slightly different sentiment towards what’s happening. People are understanding that galleries are not purely just a commercial enterprise, but that they have a role to play in that they’re part of a bigger infrastructure.”

Be that as it may, she is quick to point out that one must remember the collector sample is principally made up of very wealthy individuals and does not represent the collector demography at large. The parameters for the survey required respondents to have personal wealth in excess of US$1 million. Of those surveyed, 44% fell in the US$1-5 million bracket, 36% of respondents owned wealth above US$10 million, and 7% classified as ultra-high net worth of over US$50 million. While certainly not the average art collector, it also seems as the pandemic wanes on, this group no longer simply wants to zip up their deep pockets.

 

Recovery and Rebound is a Long Road Ahead

Sales have by far been one of the leading concerns for the commercial sector, with declining sales an inevitable fact for most. While the median sales contraction was 36% compared to the same period for 2019, the report notes that of the Asian galleries who responded, a higher than average fall of 41% was experienced, with Greater China seeing the steepest decline at 55%. But it is also galleries in Asia who are showing the most optimism, with 60% of Chinese galleries believing there will be an upturn for sales in 2021. Yet, with many travel restrictions remaining in place, countries still battling waves of the coronavirus, and a vaccine only soon to possibly be available, the road to recovery for businesses and consumer confidence is still surely a long one.

“It will take time again to reengage, and I think it is a market that’s so built on a kind of conspicuous consumption,” says McAndrew. “The travel aspect of it probably needs to kick in again for it to really gain momentum. And from what I’m hearing and from what the reality is that I’m looking at from here, it’ll probably be the end of next year I think.”

 

Galleries Top Priorities for their Businesses. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.

 

Art fairs have by far been one of the most severely affected—both as a sales channel for galleries, and as businesses unto themselves. Although a scattered few fairs have continued, the list of cancelled art fairs for 2020 is still mounting, and some have even begun to cancel or postpone 2021 iterations. The HNW collector survey revealed collectors were heavily cautious in their consideration for immediate travel, with most only willing to test the waters by mid-2021, and even then, with decreased volume. Galleries are also rethinking their participation as art fair expenses, as analysed in previous years, were one of the heaviest overheads for a gallery. However, with the loss of events comes the loss of jobs in the wider ancillary services the art infrastructure is built on, so how do we weigh up the consequences of the good and the bad?

 

It’s Not Just About the Sales

 One of the most severe ramifications of the COVID-19 pandemic on the global economy has been unemployment, with a mounting number of businesses forced to furlough or lay off staff, or even close shop. The report notes that of the galleries surveyed, one third had downsized their staff in the first six months of 2020, with 38% of that made up by galleries with reported annual turnover between US$250,000 and $500,000. Still, it appears larger galleries, which may operate with more capital than their smaller peers, were the category with the biggest layoffs. Unlike small and medium galleries who already functioned with tight staff numbers pre-pandemic, larger galleries were often highly staffed—often with what appears to not be substantially high value jobs.

“I was surprised. I think the average for the bigger galleries was losing 12 people,” says McAndrew. “It’s difficult to kind of stress test for something like this. And a lot of them had really extended their premises, operating several galleries and big staffs as well. As they say, they have had more to shed in the first place.”

 

Change in Gallery Employment in H1 2020. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.

 

Going against the grain, the report discovered a small percentage of galleries—mainly in Singapore, South Korea, Japan and Australia—actually increased their number of employed staffs, suggesting it is not all a loss, but perhaps a harder hustle. Of several galleries I have regular conversations with in Hong Kong, a similar sentiment came to light. Staff numbers were maintained as gallery directors quickly sought ways to drive sales through online and private channels, and extra effort to stay connected with their collector base. Others explored pay cuts on the higher end of the payroll that would then help sustain employment for junior employees.

“I mean you would hope that in these kinds of situations, people would hang on to the employees as long as possible, because the other costs do go down, the sales will revive again,” says McAndrew. “But I think it is kind of a knee jerk reaction to just sort of try and save costs in any way you can, whereas if you can kind of pace yourself and just see areas where they are not going to be spending, then they could have probably maintained employment a bit better.”

 

What If Digital is Not the Answer?

It is simply impossible to discount the importance of digital business strategies. Averaged across all galleries, online sales rose from making up just 10% of a gallery’s means of sales in 2019 to 37% in just these first six months of 2020.

“The ones that rose to the top are those trying to concentrate their focus on what they can do online. You know, [digital strategies] doesn’t seem to be a passing thing,” says McAndrew. The hype is undoubtedly substantial, nonetheless the statistics above also reflect that more than half of a gallery’s transactions are still not being made online, be it website, social media or online viewing room purchases. It is less of a preferred means than one might think.

 

Sales Channels used for Purchasing in H1 2020. Extracted from The Impact of COVID-19 on the Gallery Sector. Image copyright and courtesy of Arts Economics.

 

Of the HNW collectors surveyed, 75% had purchased through a gallery, yet of those, only 38% was conducted via a gallery website or online viewing room. If ever there was proof of the power of a personal touch, it’s probably now. One third of gallery purchases were reportedly made by phone or through email, while the largest majority, at 41%, was still by physically visiting the gallery premises. Of the galleries surveyed, 56% revealed that they had never used virtual reality, and 72% had never used augmented reality or similar as a tool. Some galleries commented on what they perceive is the lack of effectiveness in the technology to truly enhance viewer experience, exhibitions and sales.

 

 Where Does That Leave Us Now?

Without question the art business is not on the incline slope to recovery yet. There is an expected knock-on effect to continue through the better half of 2021 at least. So, the question now is, what might galleries do? How do we brace for the coming months or year ahead?

Even though the HNW collector survey revealed that collectors were keen to acquire, only 14% were actively engaging with new galleries. There is therefore a case to be made for a gallery to go back to existing databases and try to convert previous first-time buyers. Galleries commonly have a safety net of clients to whom they maintain close relations but is this really sufficient in current times? McAndrew suggests, “Follow-up with those people that have bought just once, instead of always focusing on the same five or six people that buy regularly. Start trying to turn those first-time buyers into more regular buyers also. That’s a very cost-effective revenue generating strategy if they can try and do that in some way.”

She likens this to a psychological theory she recently came across regarding chasers and stretchers. While chasers, she tells me, are the type to keep pushing for bigger and better sales, stretchers will consider the present reality and try to do more with what they have at hand. “I think everyone needs to do a bit more stretching at the moment. Look at what they have and see how can we really tighten up and kind of maintain their businesses.” She adds, “And the other big one is kind of reducing costs, finding ways to still maintain your profit level by reducing the outgoings. We’ve got to kind of live in the reality.”

With some optimism, McAndrew reminds us that a market rarely comes out the other end of a recession in the same form it went in, and if we view it with a positive note, for an industry that was already boiling over under pressure and “not quite right in many aspects,” she hopes that this is now also “the impetus for some real, long-lasting change.”

 

 

 

 

 

 
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