Art market report shows the severe impact of Covid-19
Smaller galleries have been hardest hit, while online selling platforms are a growing priority
Art gallery sales fell by an average 36 per cent in the first half of this year, finds the first comprehensive analysis of the impact of Covid-19 on this sector, published by Art Basel and UBS today.
The new survey of 795 contemporary and modern art specialists was conducted by the industry expert Clare McAndrew, founder of Arts Economics. She reports a median decline in sales value of 43 per cent for the period, a relevant measure in such a fragmented industry. McAndrew does not cover the auction sector in her report but earlier research by ArtTactic found that sales fell 49 per cent for the leading auction houses in the first half of 2020.
The gallery industry as a whole has been hit on several fronts by the lockdowns and other restrictions around the world. “The business model — based fundamentally on discretionary spending and strongly dependent on travel and in-person contact — is uniquely positioned to struggle in the present realities of the Covid-19 pandemic,” says the latest report.
As has become the norm in the art market in recent years, the greatest pain has been felt by those lower down the food chain. Galleries with a turnover between $250,000 and $500,000 a year, which represent 13 per cent of those surveyed, report the largest share of downsizing (38 per cent) as well as the greatest fall in total sales (47 per cent).
Alarming for a sector that is mostly made up of such relatively small businesses is that a third of those surveyed by McAndrew were forced to cut their staff. This equated to an average of four job losses out of a staff of eight (permanent and part-time employees) during the period. Only two per cent of galleries report having to close down completely, although, as McAndrew points out, this estimate might be conservative given that “Permanently closed galleries are less likely to have received and responded to the survey.”
Nearly all the galleries (93 per cent) had to shut their doors for an average of 10 weeks during the first half of this year. While most have since reopened, the report notes that their situation could yet worsen as deadlines loom for emergency relief such as furlough schemes and rent reductions.
Art fairs, where sometimes hundreds of selected galleries gather in one place to attract thousands of well-heeled buyers for a few days, accounted for an average 46 per cent of gallery sales last year. For the first half of 2020, as such events have been overwhelmingly cancelled or optimistically postponed, galleries reported only 16 per cent of income from fairs. This percentage is likely to fall further for the full year as some fairs held early in the year — including Frieze LA and the Armory Show in New York — were able to sneak in before the seriousness of the pandemic was recognised.
To make up for some lost sales, galleries have made decent strides online, which has proved a “lifeline”, McAndrew says. Total sales made online grew from a 10 per cent share of business in 2019 to 37 per cent for the first half of 2020. These were predominantly made from galleries’ own websites, as well as third-party aggregators and the increasingly familiar “OVRs” (Online Viewing Rooms) that have replaced art fairs.
Adjustment to a more digital world is still shaky in this industry, but most galleries expect their online business to keep growing and be a sustainable income stream into 2021. Of possible concern is that a quarter of McAndrew’s sample made no online sales at all this year.
Investment in IT came at a price. McAndrew finds that this rose from an average 8 per cent of a gallery’s costs in 2019 to 10 per cent in the first half of 2020. But this has been more than made up for in the fall in the average cost of attending art fairs, previously the largest component at 29 per cent, now down to 16 per cent. Other travel costs, such as visiting museum shows or clients overseas, have also fallen, from 11 per cent to 7 per cent. This enabled some galleries to maintain more stable profits during the period.
Some cheer can also be found in McAndrew’s survey of 360 active collectors, each with more than $1m liquid assets and equally split between the US, UK and Hong Kong. The vast majority (92 per cent) reported that they had bought art in the first six months of 2020 and at high levels. McAndrew reports that 56 per cent of collectors spent more than $100,000 during the period, including 16 per cent who spent more than $1m.
An average of 59 per cent of collectors say the pandemic has in fact “increased their interest in collecting”, with 31 per cent adding “significantly so”. This instinct is strongest among the millennial bracket (defined here as aged between 23 and 38), where these levels are at 70 per cent and 42 per cent respectively. Unlike in previous recessions, galleries have “noted an acute awareness and strong drive by some collectors to support the arts, and help ensure the survival of galleries, artists, and museums during the crisis”, McAndrew writes.
The millennial collectors, who represent nearly half of the active collectors surveyed, were also found to be more comfortable buying at higher prices online in these sectors: 16 per cent of millennials were found “commonly” to buy work at over $1m online while none of the boomer generation (aged 55-73) bought online at this level. Nearly a third of collectors report buying a work via Instagram in the first six months of 2020.
Overall though, 70 per cent of collectors surveyed said they still preferred seeing art in person and 15 per cent said that they did not use an OVR at all during the period.
Gallery priorities for the remainder of the year are to boost online sales, cut costs and focus on existing collectors. Of potential concern for the market’s future health is the report’s finding that only 14 per cent of collectors are looking beyond the established, blue-chip galleries they already know, while the surviving businesses are also erring on the conservative side. “Especially in times of crisis, organisations may abandon drastic efforts to distinguish themselves and instead seek safety by a kind of follow-the-leader pattern of behaviour,” McAndrew writes. But with most collectors not planning to travel to art events until the second half of 2021 and most galleries “bracing for further declines”, a bit of homogenisation might be the least of the industry’s problems.