The New Economics of the Decorative and Fine Arts
May 1st, 2008 by admin
In an intriguing article in Art + Auction magazine, Clare McAndrew, an art market economist who runs the research and consulting firm Arts Economics, offered an interesting perspective on the economic fluctuations of the art world. Ms. McAndrews explained the extent to which the decorative arts have been drastically overwhelmed in dollar value by the fine arts. According to her research, 10 years ago the decorative arts market was 3 times greater than the fine arts market. Today, that “situation has completely turned on its head” as “decorative art is at a low point in its cycle”.
The duopoly of Christie’s and Sotheby’s has had something to do with it, as they aggressively try to control the high priced segment of both markets; but it works better with fine art. But their emphasis on either art form is ultimately directed by taste, knowledge, and financial considerations (it’s not free like air, aesthetics cost money). This trend of the last decade probably won’t get much worse and according to Ms. McAndrews, should stabilize and improve. I’ve always been told to buy when this type of condition hits the stock market.
I’d like to sound bells and whistles and sing “happy days are here again”, but first the decorative arts have to earn its standing back with the consumer. Do antiques and decorative arts not have the advantage of a decorative functionality? An aesthetic quality is an intrinsic part of any art form. Decorative arts somehow do not have the cache of name recognition. That quality is now attached to contemporary furniture designers, but is modern or contemporary the only area for decorative arts success?
Ultimately it comes down to taste trends and price point. From what was displayed at the style influential Kips Bay Decorator Show House, the parceled use of antiques, pre-1950 was self evident. It didn’t help having the venue in a 1950’s apartment building to better display how “antiques” are not necessary in that form of living. It was a Show Apartment, not a Show House. The great apartments of Park and Fifth Avenue use to be laden with great decorative arts. The times have dictated the efficiencies of fine art for display and as a burden for furniture and decorative arts.
The challenge of living in a world that puts a value on space requires the decorative arts to be perceived as more of a necessity for living. Appreciation of the craftsman’s time and effort to design and construct a decoratively functioning work of art is not an inherent weakness. The economics of a limited supply will never go away. The question is why we can’t live with antiques and decorative arts anymore and what can make them more appealing.
France Gives Auctioneers Their Market
April 18th, 2008 by admin
Dealers in France, and by default around the world, suffered a devastating defeat when the French government lifted major constraints on how auctioneers operate. When Francois Curiel of Christie’s say the report is “good news for us”, it can’t be good for dealers, consigners, or anyone else, but them. By the government of France’s attempt of “easing and modernizing” auction regulations, they have passed on an opportunity to take the deception of sham bidding and conflict of interest out of the industry.
But what would anyone expect with the Sotheby’s/Christie’s duopoly; arm twisting with their financial and influence muscle is a just a fact of life. It doesn’t matter if it is the government of France or the New York State legislature (blog 8/1/07-“Proposed NY State Legislation; Who Are the winners?”). There is not competitive voice that exposes their self serving methods like relying on the deceptive hiding of a reserve, while accepting bids they know they cannot accept.
Perhaps the most demoralizing thing for dealers in France are the new rules giving auctioneers the ability to buy and sell, like a dealer. Already 10% of both Sotheby’s and Christie’s global turnover, private sales should prove to be boon for them, at the expense of both dealers and collectors. Their financial ability to manipulate the market with both auction and private sales, along with a combination of both is very compelling and dangerous. It seems that this type of conflict of interest is tolerated by government and its participants only in this industry. Financial firms can act as agent or their own account when buying securities. The difference with these auctioneers is they can blur the lines to their advantage at the expense of both the buyer and seller.
I guess I should start to wake up and smell the roses for the fate of dealers as we know them. The only vestige off limits for the auctioneers in France with these new rules is not being able to sell new goods. Of course that risk has to be placed on the dealers of contemporary works, where it is incumbent upon the dealer to create an initial market price. No easy chore. But just as the once vibrant dealer trade has withered in the US and around the world, France will now lend a helping hand to their demise.
With the guaranteed revenue stream of a non-negotiable (and ever rising) buyer’s premium and a seller’s commission, minimal investment in long term inventory, and the ability to employ tactics that bait buyers, dealers will always be at a competitive disadvantage. With no financial or organizational voice to counter the auctioneer’s focused goals, dealers will slide further as an influence for fair trade and transparency in the industry.
Ben Bernanke, and How Auctions Should Operate
March 26th, 2008 by admin
I just finished reading Alan Greenspan’s book, “Age of Turbulence”, and thought that in the scheme of international economics and world issues, the art and antiques industry is pretty much a speck of dust. But Ben Bernanke’s latest orchestration of the Bear Stearns purchase reveals how the auction process works best. He simply created a floor price of $2.00/share, and then let Adam Smith’s “invisible hand” do its magic ($10.00 latest offer).
In a way, Mr. Bernanke has created a new confidence in the ability of the marketplace to regain its balance. When a market is created, it should draw participants, if by no other mechanism than a price point. While I do acknowledge that the marketplace for all financial and real assets can seize up, there is nothing like a low ball offer to get the attention of any potential market player.
The unexpected connection to the events creating this investment headline and the art and antiques industry is how the auction process that dominates the trade is so corrupted by secrecy, conflict of interest, and deception. I don’t think Bernanke or Chase was deceptive or secretive in publicly backing a $2.00 reserve price for all of Bear’s shares. As far as a conflict of interest is concerned, both Chase and the Federal Reserve were motivated buyers, the Fed to create market confidence and liquidity and Chase for a great bargain. By creating an almost absurdly low price the marketplace recognized opportunity.
Sotheby’s and Christie’s have rarely operated in an open manner when it come to allowing Adam Smith’s invisible hand to set prices but would rather use secret reserves and sham bidding to deceive buyers. The question remains, what would the market price for Bear Stearns have been if it had informed the public is was for sale after it disclosed it was going to face a liquidity crisis? Were shareholder’s deceived, or was a fair auction process initiated by the Fed to prevent a run on the bank? The fact remains that Bear Stearns will now be a changed entity, but its value will now be openly settled by an auction process that was based on a disclosed reserve price.
This process reminds me of some situations I have witnessed at some local auctions, where the auctioneer will start the bidding at an absurdly low price. Hands pop up like rocket ships to gain the auctioneers attention. While the secret reserve might not be disclosed, the thought of a potential bargain is to compelling to ignore. When a low reserve is disclosed too, it is even more compelling to ignore and the bidding can be frenzied.
So why do auctioneers operate in this manner? Are their clients afraid that complaining might jeopardize their relationship with them, or maybe deception is in everybody’s interest? I don’t think so.
Habits are hard to break, and the addiction of sham bidding and secret reserves on the buyer by auctioneers has become a bad habit that must be shattered. The mechanisms that foster a market price can be volatile and unpredictable; supply, condition, rarity, knowledge. But can you imagine what Adam Smith would think of a market based on not on the invisible hand, but on deception?
Decorative and Fine Arts, as Props Around Us
March 6th, 2008 by admin
Presentation is everything, for selling, image, or a person’s own self esteem. The forms of presentation for decorative and fine arts can be seen in museums, homes, auction house exhibitions, or a movie or theatre set. These items were made not only to be representative of their era, but to exhibit taste and artistic skill.
When designing a set for a Broadway show like “My Fair Lady” or the motion pictures version, it requires the same need for authenticity and believability. Interior designers also use the same concept when they create a setting for a client’s home. It requires “props”, which can be new or old, to set the stage of the owner’s home. My home library and Dr. Doolittle’s Edwardian study are creative, representative environments of who we are.
My perception of “props” comes from my experiences at Newel working with window display, TV, motion picture, & theater designers, an of course interior designers. Depending on the situation, the goal is to make the space as realistic as possible using items in my inventory that can accomplish that objective. (It can also be a lot of fun!) When you have a deep and varied inventory of quality and styles, you have an opportunity to work with these designers to impart my biases and experience on the “look” of the set. Today, I was working on a set attempting to create an upscale Italian hotel, but being created for a movie set in New York. Tomorrow, it might be a commercial photographer needing a slick French 1940s chaise for a model selling perfume.
Today, more than ever, the high fashion apartments and homes featured in glossy shelter magazines are no different. Selling a life style with antique and art require their proper display. As collector or just having a sense of taste, using these objects as period items, or props helps create a visual effect.
I have to relate one experience which really brings to life the idea of using items in my inventory, as props. We supplied items for the movie “Reversal of Fortune”, which deals with the attempted murder of Sonny Von Bulow. In real life, the contents of her New York City apartment were auctioned off in the 1980s and we purchased a number of items in the sale. There were some nice decorative and period pieces that we hoped to sell, and or rent. Several years later, when the movie was made, the designers came to Newel to duplicate her New York apartment (as well as her Newport mansion), and rented actual items from her home for the sets. These were real items from a real person, now being used as props to define her character.
Using the term props would connote something quite fake and artificial. My experiences have been just the opposite, to creatively use antiques and decorative art for realistic and accurate presentation purposes. It could be real or simulated, but the goal is creating a genuine and credible effect by their use.
Palm Beach Jewelry, Art & Antiques Show; Some Observations
February 22nd, 2008 by admin
Glitz, high prices, but where’s the (decorative arts) beef? The Palm Beach Jewelry, Art & Antiques Show over President’s Day Weekend was just that: magnificent jewelry, beautiful art, but what about furniture and decorative arts. The show’s title gave equal billing to that aspect of the trade, but from what I saw, it was sadly lacking any real presents at the show.
There was a smattering of decorative arts dealers in attendance, representing a limited number of styles and periods, with little or no duplication of dealers showing similar periods. Compared to the many jewelry and painting dealers that offered works of art that one could put side by side to judge before buying, it was a big disappointment. Does this imply that furniture is too difficult to sell, or is there a lack of dealers able to prepare and finance the cost of this type of show? I don’t quite know the answer, but having a booth with 500 pieces of jewelry should be a lot easier to set up and transport. It allows more items for buyers to see than stocking the same space with clunky furniture items that are difficult to prepare for shipping, and take up space that limits the number of items available to sell.
But there is another side to this dilemma. We see that shows that don’t cater to the well healed Palm Beach crowd do attract furniture dealers, abet mostly 20th century dealers. The Stella Pier Shows in New York City seem to have vast quantities of furniture, jewelry, and all sorts of decorative and fine arts, but not necessarily the great quality that you see at Palm Beach. There is a significant division of the trade and its clients between the two types of fairs.
I have a theory why this is the case. When you examine the type of person who walks the aisles of a Palm Beach Show, you have a real “moneyed” crowd who are for the most part collectors and or have consultants or decorators who they rely on for an affirmation of what is appropriate. Of course you also have the rich guys who want to embellish their wife (?) or significant other with a spontaneous and impressive gift of a necklace or ring. No consultant necessary here! But for these same people, buying a Georgian dining table for a couple of hundred thousand dollars would require a decorator’s nod.
You see this aspect at every upscale show where expensive furniture is on display. Jewelry and art have a much more emotional pull at the point of purchase. That feeling isn’t so prevalent with English, French and furniture styles in general, as the collectors of those styles have given way to the decorator’s preference of what is appropriate.
While I enjoy going to show, both upscale and middle of the road, my goal is to see what’s available and at what price, similar to how I look at auction results (once I add on the buyer’s premium). The second reason is to get a sounding board as to how dealers are doing and what fields are doing well and those that aren’t. Conversations with the dealers of all price and style points can sometimes be more valuable than a good purchase. It may well prepare me for understanding the future trends and sentiments in the industry, and the knowledge of what is really best for the direction of my business. For me at this show, dealer conversations were more enlightening than the potential for purchases.
The Antiques Trade, It’s Now a Big Show
January 31st, 2008 by admin
The antiques trade has seen a vast change in how dealers procure and turnover inventory. Today, you don’t have large numbers of American dealers and decorators annually making multiple grand buying trips to Europe, or for that matter Europeans with their over valued Euro doing that here. You do see dealers getting older with little new blood coming into the industry, sources to buy are more competitive, and a very segmented market subjected to evolving styles and price points.
The dealer trade has retreated to the show format and for all practical purposes is abandoning the independent showroom/warehouse location. As a kid I remember Pine Street in Philadelphia as a bustling antiques dealer row with a great mix of local and world wide decorative arts to buy. Even the famed New York City “University Place” market now caters more to the carriage trade than the dealer trade.
Paris and London aren’t what they use to be either. And with the incredible expense of travel and cost of inventory, there is a tremendous pressure on profitability. I remember when I turned 13, my grandparents, who founded Newel, took me on a summer buying trip through Europe. They took all their grandchildren on the trip when they both were alive. I still have home movies of us in the Paris flea markets and the English countryside, circa 1963. Incredible merchandise was all over the place, and it was being bought not only by my grandfather, but anyone who wanted it. Auctions, who needed them when the dealers had all the goods and they wanted to sell.
But I must confess I also have a very jaded perspective of the whole state of the market. My grandfather was quite different than the other dealers because he rented his items to TV (a new industry), window displays, and of course Broadway and the movies. He also knew that no one else understood how to do it. As a little tid-bit about “those days”, he use to put a sign in the front window: “closed-taking inventory” to deter buyers, as he was too busy with the massive demand for renting his period pieces.
But just as people used his inventory for display or to create period settings, so now the antiques trade has evolved showing their stock in some upscale, haughty, antiques show in an opulent hall, in an ever changing city venue. The show must go on the road; New York, London, Palm Beach, Masstricht, Miami, LA, Basel, Moscow, Dubai…..on the SeaFair yacht. Dealers have lost any confidence in their own self survival and now depend totally on the show format. The show format extends to every level of dealer, as recognized by the many listed each week in the Arts and Antiques Weekly in the US, or the Antiques Trade Gazette in England.
With the reality that dealers are now dependent on the show format, it has caused a blandness and commonality as to how they can be creative and dynamic. Dealers, restricted by show promoter rules on space, vetting, and fees, have no alternative. Maybe not; liquidation at auction has recently proved to be a most efficient way to eliminate all dealer business problems.
Recessions and Decorative & Fine Arts
January 26th, 2008 by admin
Booms and busts have littered the decorative and fine arts markets just as financial cycles have their segmented ups and downs. It doesn’t take a rocket scientist to figure out that any asset experiences change in the trajectory of its value. Assets can crash and burn as well as present opportunity. Whether sub-prime securities or Impressionist art, no matter how good the underlying asset is packaged and promoted, buyers are constantly re-evaluating the market price.
Like a mad dash for the exits, when perception meets a reality that revalues that asset differently, a panic can set in. Remember when Impressionist painting was being aggressively purchased by the Japanese in the 1980’s, and the shock of their total retreat from the market? Bought-in art was a way of life for that high priced market. The funny thing about that time period, Sotheby’s, in one of their reports explaining their company losses from that market crash, noted that the decorative arts, while not very exciting, continued to be a stable and consistent performer.
Since the beginning of the 20th Century, decorative and fine art markets have experienced an expanding demand due to population and wealth, along with a somewhat inelastic supply of product and its turnover period. As an asset class, it is totally unique and operates to some extent along classical Adam Smith doctrines. Perhaps the great herd mentality in a valuation is how fashionable and trendy it is perceived. In the decorative arts, “boring brown wood” English furniture has recently been experiencing a market malaise while decorative arts and furniture of the 20th Century have been exploding.
Today we are being bombarded with media discussion of an impending economic recession. There has always been a theory that the art and antiques industry has a lag period after an economic recession actually hits this market. However I find the lag is really a separate influence as to what is actually happening in the way things are being priced to sell. There is always going to be a certain amount of fluidity in which segments of the market get inflated, gyrates, or retreats in value.
This asset class, for the most part, has avoided the esoteric leveraged packaging process Wall Street has so skillfully devised for its clients. Sotheby’s and Christie’s, along with some boutique financial entities, have attempted to just that to these assets. However, that is a game for big players and not the guy stuck with a resetting sub-prime mortgage. The real thought behind valuing these assets is based on each item’s own real merits, and is not recognized in “certificate” form. What you see, touch, and experience is quite tangible and not really so abstract.
The process of examining and appreciating the quality of a piece of furniture or a painting is quite similar to that of analyzing a financial statement. Knowledge and experience usually make for a sound opinion, and good values can be spotted irrespective of market conditions.
Sotheby’s and Christie’s, Colluding Again
December 21st, 2007 by admin
Only the Sotheby’s/Christie’s duopoly can do it, and nobody dares make a comment on the possibility of some sort of mutual manipulation of the market by them. I am referring to auction house guarantees, which caused a bit of a public shock when Sotheby’s supposedly took a bath on their sale of impressionist and modern paintings sale held on the evening of November 7th in New York City.
I read a striking comment about this in an article in the Art Newspaper’s December 12th online issue (186) which reported that “this summer both Sotheby’s and Christie’s imposed a cap on guarantees of around $500 million each for the year, according to a regulatory filing by Sotheby’s and confirmation from senior Christie’s executives”. Notice that they both acknowledged and agreed to the limit and the government couldn’t care less. The duopoly just imposes what it wants on the public without any recourse. There is not one organization or government body that takes any interest or makes a public comment on their mutually beneficial decision. Colluding to decreasing risk is their obvious goal. Excuse me, but where’s the word “competition” between them in the equation? Remember how and why a duopoly works: an economic situation in which two powerful groups or organizations dominate commerce in one business market or commodity (Encarta Dictionary).
Dealers of course are totally impudent; they have sold out to the duopoly for their own survival or are used by the duopoly for their infamous “third party loans/guarantees” where they can off load some of the risk. More incestuous is the fact that these third parties may bid on the property, a blatant conflict of interest and unfair competitive advantage. If I owned an item, it is illegal for me to bid on it, and the auctioneer knows this. In the context of their “joint ownership”, where the auctioneer is a direct partner and has an interest in running up the price, all of a sudden it is legal. And they must, when, according to the article, the guarantees were in the mid-range of the estimates.
As I often say, the duopoly lost the battle but won the war after their conviction for collusion back in 2000. Upon examining all of their joint practices since that conviction, they have enjoyed stunning growth and an unregulated imposition of their mutually conceived methods. Add their reciprocal agreement on guarantees to the list.
Now A Second Auctioneer Gets It
November 29th, 2007 by admin
What is going on here? A second auctioneer recently announced a change of practice in their method of auctioning to the public. As related in an editorial in the Maine Antiques Digest, James Halperin, co-chairman of Dallas based Heritage Auction Galleries, stated in a letter to the Wall Street Journal that Heritage now discloses the secret reserve prior to their auctions and uses openness rather than secrecy to build confidence among their bidders. Holy cow!!
Is that the death of “chandelier bidding”? Maybe, but he bring up another interesting point in questioning why “other auction firms are so hesitant to adopt similar policies”. That is a question that must make the Sotheby’s/Christie’s duopoly shake in their boots. After all, isn’t that how they manipulate their stranglehold on the market, along with conflict of interest guarantees (11/27/07 blog) and taking fees (seller commissions & non-negotiable buyer’s premiums) from both parties of the transaction they are brokering? Mr. Halperin has challenged his industry to come clean on the process and “eliminate the mystique and confusion surrounding the auction business”.
Auction industry standards start with the duopoly, and their calcified attitude of “their way or the highway” towards consigners, buyers, and fellow auctioneers is what makes them feel in control and above what is transparent and honest. With Mr. Haperin admonishing secret reserves, and Robert Brooks of Bonhams acknowledging the need for credibility and clarity in auctioneers acting as an agent without conflicts of interest, there now is a real recognition that the industry is calling out for practices that ultimately could lead to enlarging the market.
Perhaps this is the beginning of a ground-swell of auctioneers who understand that the present practices of deception are not acceptable and a hindrance to growth for not just auctioneers, but everyone in the industry who sells. Unfortunately, the duopoly looks at these assaults on their methods with no trepidation, as they must both work together to maintain the status quo. After all, why would they want to be caught “colluding” to change things for the good?
Finally, An Auctioneer Gets It!
November 27th, 2007 by admin
I have to admit, I never thought an auctioneer could so clearly elaborate on some of the critical issues that plague the auction process in our industry. Robert Brooks, Bonham’s Chairman, displayed candour and truthfulness in stating “The minute an auction house moves away from simply being an intermediary between buyers and sellers and takes on the role of financier, it starts to change its core character as well as the relationship between the seller, his agent and the buyer.”
His comments, however, were directed not just to the public, but specifically towards the Sotheby’s/Christie’s duopoly and how they attempt to blur the lines of “agency” by acting as a financier in the transaction. Mr. Brooks understands that only this duopoly can pull it off at the expense of his firm’s inability to compete on their level. But if you can’t compete, at least try to do the right thing, and that is what he is betting on. He brought out many significant points, like the unsophisticated practice of not properly segregating client funds and surmised “use of guarantees among some auction houses must ultimately erode the credibility of the industry and thus its stability”.
This final statement is the most significant point he makes, because it is a recognition that deception is not in their best interest. Whether it is a non-disclosed reserve, sham bidding, commissions from the seller and buyer (non-negotiable buyer’s premium), and even the practice of offering special payment terms to selected buyers (blog 11/19/07), credibility can become something that will become more recognizable. Of course the irony is that if the auction process was totally transparent, it might upset the stability of the industry, but for the better.
But Mr. Brooks, I hope you know that dealing with this duopoly is not just making a fuss over the next round of buyer’s premium increases. François Pinault, owner of Christie’s and William Ruprecht, President of the NYSE listed Sotheby’s are seasoned corporate leaders who know how to direct and guide their firms through these public relations issues. They both have survived quite nicely after both firms were convicted on price fixing and collusion back in 2000. With the use of guarantees and such, their ability to separate themselves from the pack is all the more glaring and now so accepted by the public’s attraction to their every press release.
The rest of the auction industry lives off their precedent setting methods. I am at a loss to think of who has such financial and political capital in their industry to protect and expand their interests. This is isn’t a local issue in New York, London, or Singapore; they have made it a world wide practice. The irony is they are in the best position to enjoy the financial benefits of doing it right. However, the duopoly won’t want to give up their control of the industry unless someone (auctioneers, dealers, buying public, or government regulators) is willing to stand up to their practices and force a change.