Navigating a Shrinking Art Market
To the outside world, the most visible consequence of the tsunami that swept across the art market is the dramatic fall in auction turnover numbers during the first half of 2009.
At Christie’s total sales as of June 30 stood at $1.8 billion, a 35 percent drop from the corresponding period of 2008. At Sotheby’s the plunge looked abysmal. With sales of only $995 million, the total was down by 64 percent. True, as a highly placed staff member privately pointed out to me, the Christie’s result would have been considerably less bright had it not been for the phenomenal one-off Yves Saint Laurent-Pierre Bergé February auction in Paris, which by the end of the third day boasted a cool €374 million, more than half a billion dollars. But that total makes the overall auction market performance look bleaker still.
The real matter of concern, however, does not lie in the global numbers but in the reason underlying them. Contrary to what both end-of-season reports suggest, this is not because the financial storm of autumn 2008 put the auction market into crisis mode like the rest of the economy. Quite the contrary. It remained strikingly bullish. The drop in overall sales reflects not a reluctance to buy art, but to consign it to auction.
Evidence of the buyers’ keenness came forth even in the January New York sales of Old Masters, at a time when the gloom was at its darkest. A dip in the success rate reflected the paucity of desirable goods, but where there was cause to compete, bidders were enthusiastic. At Sotheby’s an admirable portrait of a bagpipe player by Hendrick Ter Brugghen realized a record $10,162,500. Another enormous price in its own right was the $1,314,500 paid for François Bouchers The Muse Erato, done in the most conventional Louis XV style, long out of favor. The performance of the Boucher, which sold for nearly two and a half times the estimate, underlined the eagerness to acquire typical works by well-known artists.
A few days later in London, the auctions of Impressionist and modern masters, unimpressive as they were, demonstrated that buyers were, more than ever, ready to jump at anything remotely plausible in this category. On February 3, there were only 30 lots at Sotheby’s, and the star piece was a statue that had not even been physically made by the artist to whose name it was credited. This was one of several bronze casts reproducing a wax model executed by Degas in 1879-1881. The Petite danseuse de quatorze ans, as it is now known, was cast sometime between 1922 and 1937, long after the artist’s death in 1917.
It is authentic in legal terms because the casts were commissioned by the artist’s heirs, who hold the copyright. But the trimming and the patination, both of which are essential in determining the final appearance of the bronze after it is taken out of its mold, were not controlled by the artist. This did not stop the Petite danseuse from becoming the most expensive three-dimensional work associated with the artist’s name ever auctioned. It climbed to an astonishing £13 million ($19 million).
There were other unexpectedly high prices. Istanbul I, painted by the Austrian Oskar Kokoschka in June 1929, realized £1.5 million ($2.1 million ), even though the sketchy manner and seething detail results in a confused composition.
Yet these were no freakish occurrences. In March the European Fine Art Fair in Maastricht was in overall terms a huge success. Old Masters fared brilliantly. Johnny Van Haeften, of London, the European leader in Dutch and Flemish masters, did as well as in 2008. Some dealers with a less extensive stock, like Raphael+Valls" class="aiartists">Raphael Valls, of London, had their best fair ever. Even more telling, the story was the same in some other areas at an incomparably more modest financial level. Ben Janssens, of London, whose main focus is Chinese art with sidelines in Japanese and Indian art, also did better than ever before at Maastricht.
From May to July the auction market soared from strength to strength, within the limitations of its offerings. The astonishing case of two portraits by Tamara de Lempicka, a café society artist of the Art Deco age, offered the ultimate symbol of the feverish search for works with signatures that ring a bell. Sold in the context of the Impressionist and modern art sales in New York, the picture, which came close to kitsch, would have run into difficulties in earlier times. Instead, on May 5 at Sotheby’s the 1932 Portrait de Marjorie Ferry realized a record $4.9 million. More amazing still, that record was beaten a day later when Christie’s sold her 1932 Portrait de Mme M. for $6.1 million.
At the London auctions in June, the fever rose higher. At Christie’s on June 23, an 1878 garden view by Monet exceeded all hopes at £6,130,000 ($10 million), and Joan Mirós Peinture (femme se poudrant) climbed to £4 million ($6.5 million), far above the estimate.
The buying spree culminated with the July Old Master sales in London, not because Old Masters have a wider constituency than the Impressionists — the reverse is true — but because they offer a much wider selection on a higher-quality level.
At Christie’s, new records were set on July 7 with pictures that could hardly be described as out of this world. The Madonna and Child in a Landscape by the 16th-century Florentine master Fra Bartolommeo, cost £2.2 million ($3.5 million). No comparable work having come up at auction in a long time, comparisons are difficult. By contrast, the record £1.4 million ($2.2 million) paid for a still life by Willem Claesz Heda — which resembles many more still lifes of the period, with a similar pewter jug — was unquestionably stupendous. The background was painted over in the course of fairly recent restoration work, and yet the Heda more than doubled its high estimate.
Then there was the portrait of a young patrician by Giuliano Bugiardini, which made £825,250 ($1.3 million), two and a half times the upper end of the estimate. Bugiardini is not a household name, but the portrait was once called a Raphael. The idea that it might be given this exalted identity once more, however remote the possibility, presumably helped. That too says a lot about the market’s bullishness. When buyers are cautious, they rarely go in for such gambles.
On July 8 at Sotheby’s, the urge to grab anything perceived as important was even greater. Prometheus set an auction record for Jusepe de Ribera, at £3.8 million ($6.2 million). The picture, histrionic in its violent expressionism, is unusual. Its instant impact helped catapult it to three times its estimate, but in days of greater abundance, this would have been unlikely.
It is not only at its top end that the market is thriving. At the bottom of the financial scale, there are today auctions in which furniture of no consequence and often no clearly discernible period, and paintings of uncertain authorship can appear by the dozens and end in commercial triumph if not aesthetic glory.
The latest sale of that kind, at Christie’s South Kensington, was no exception. Dubbed Interiors, the August 4 sale included pretty much everything deemed unworthy of the exalted premises on King Street, from a mid-Victorian games table in walnut and walnut-burr veneer to a trotting elephant cast by a Japanese bronze maker of the late 19th century.
The table, rather fussy with its turned baluster supports and its heavy fold-over top inlaid with chess and backgammon boards, made £1,500 ($2,546), and the elephant, 19 inches long, crashed its way up to £4,375 ($7,424). Did the presence of a signature, mentioned but not deciphered, make a difference? Perhaps. At least some sort of justification can be invoked.
More intriguing, dodos also made the grade. Against the odds, a mahogany dressing table presumed to be Russian and candidly described as "adapted" — for which read "altered" or "fiddled" — gracefully exceeded the high estimate, bringing in £2,500 ($4,243). And the list goes on.
The few acceptable pieces, banal but genuine and in good condition, were all energetically fought over. A mahogany pedestal desk, of the kind made by the hundreds for offices and public libraries in the early Victorian period, matched the high estimate at £2,750 ($4,625), and a Regency mahogany bowfront chest went over its estimate by 50 percent, realizing £3,500 ($5,886).
In a nutshell, the buyers are there in larger numbers than ever, but the goods are not. The quantities necessary to sustain auction houses are melting like the glaciers of Antarctica.
Sooner or later auction houses will have to contemplate a transformation on a scale hitherto unparalleled. Like the proverbial dinosaurs, they are left with too little verdure to feed their enormous bodies. Sadly, the rivalry in which Christie’s and Sotheby’s locked themselves forced them to develop into ever bigger, ever more luxurious outfits to attract consignors.
They acquired palatial premises. Sotheby’s New York now has the finest display space anywhere in the world, outside of museums, for showing paintings in natural light, on the 10th floor of its York Avenue building. This may conceivably have helped Sotheby’s to persuade some sellers to go to it rather than to Christie’s. But it did not come cheaply. The day there are too few paintings to handle, the beautiful space and the whole building might turn out to be too expensive to maintain.
Similarly, the glossy art-paper catalogues with profusely illustrated entries running to several pages, designed to attract buyers and consigners alike, will eventually look disproportionately expensive. Add the traveling previews, the parties and the special services catering to the ultrarich, and the auction house burden has clearly become wildly excessive.
No wonder Sotheby’s was so keen to emphasize the savings it has made without going into too much specific detail. The problem is that the cost-cutting is probably not enough in either house. Both need to retrench drastically. But reducing the size of leading departments, while giving up others where there is altogether too little material left to justify them, will prove to be as difficult in human terms vis-à-vis staff as it is psychologically problematic vis-à-vis consignors.
That is just one side of the problem. The other concerns the methods used to compete with the opposition to win a bigger part of the cake.
Premium returns, which consist of paying back to the consignor part of the amount charged to the buyer on top of the hammer price, are doomed. The procedure cuts down on the auction houses’ significant sources of income — it nearly brought the two competitors to their knees after the art market crash in the fall of 1990. Another way of enticing consignors, giving "guarantees," is even more dangerous. The auction house commits itself to paying the consignor a fixed amount, often set around 10 percent below the lower estimate, whether the item sells or not. As auction houses are tempted to grant higher estimates than their rivals when trying to woo the consignor, an unending inflationary process goes on. Something inevitably cracks at some point. It happened in the autumn of 2008, causing losses at both houses, particularly at Sotheby’s.
This deadly game must cease. At regular intervals the auction houses proclaim their determination to give guarantees up — and invariably fail to do so, trapped as they are in their rivalry and desperate to increase their market share. The antitrust laws bar them from getting together to thrash out an agreement that would eliminate these practices once and for all. The legislature alone has the power to step in to ban procedures that warp the natural ecology of the auction system.
The guarantee amounts to a legally tolerated collusion between the auction house and the vendor against the buyer. The vendor always wins. The reserves, as currently applied, are equally questionable. They sanctify a deception made at the expense of the buyer. Known only to the vendor and the auction house, the reserves are often set slightly below the low estimate. As the auctioneer opens the bidding very far below that level, bidders trying for the piece imagine that the lot could become theirs when the auctioneer actually knows that he will not let them have it below the secretly agreed reserve. Worse, the auctioneer may legally call out imaginary bids even when no one is actually going after the work of art. The lot then gets knocked down, but it is not sold. Even so, the last-but-one bid will later be cited as the price that someone had been willing to pay.
To protect this market from imploding — and the buyers’ interests versus the vendors’ — guarantees must be banned by law, and reserves must be forced back to the minimal protective level that was once theirs. The guarantee, which amounts to a sale before the auction, compounded by a half-share speculation between vendor and auctioneer, goes against all free-market principles.
If consignors do not want to run the risks of an auction, they have the option of selling privately via an agent, which can be an auction house. This is known as a private treaty sale. Curiously, both Sotheby’s and Christie’s claim to have increased that practice in recent months, although it runs counter to their broader goal, which is to increase the mass of objects that they sell at auction. The practice might develop even further as the sum total of what is on offer sinks below the limit where auctions are commercially viable.
Nobody can say for sure where that limit lies in each category. Common sense alone suggests that if the number of lots were to fall in Impressionist and modern art, say, below 10 per session, holding an auction would no longer bring in enough revenue — the more so if the lots in question were to be second- or third-rate works. Already the relentless erosion of quantity has resulted in specialized sales of medieval art being merged with works from other periods in meaningless European Works of Art auctions. Other categories are under threat. Old Master drawings auctions are now biannual events in New York, and specialized silver sales have become a rarity.
Soon certain departments will be too expensive to run for the merchandise they handle. The problem facing auction houses is the need to prepare for their elimination — and for the inevitable downsizing of the survivors as supply declines. In the future, auction sales will cease to be big business. That is, if holding auctions continues to be the core activity of these houses.
Souren Melikian is the international editor of Art+Auction.
NEXT MONTH: The Irresistible Rise of Buyer Power
"Navigating a Shrinking Art Market" originally appeared in the October 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's October 2009 Table of Contents.