Andy Warhol,
installation view of
200 One Dollar Bills, 1962
Photo by Emmanuel Dunand/AFP.
Image via Getty Images
This week, U.S. consumer prices grew at a staggering 7 percent a year, and the worst inflation in four decades is playing out. Over the past 12 months, sharp rises in food, fuel and energy costs, as well as more troubling factors such as rents and wages, suggest that our immediate price spikes may not be just temporary — factors such as supply chain disruption, rising demand, and increased consumer spending continue to erode the dollar's purchasing power.
If all this had an impact on the art market, what would be the consequences?
Given that art is an emotion-driven asset associated with surplus wealth, the exact relationship between the art market and inflation is difficult to quantify. But history shows that in times of high inflation, the price of art at auction does tend to go higher. Nonetheless, the direct impact of inflation on the pricing of works in the primary market is often more difficult to quantify than in the secondary market.
The current sharp rise in inflation occurs after auction records have been broken one after another and the sales rate in the primary market has soared. There are many reasons for this, and factors such as the rapid emergence of ultra-high net worth investors, low interest rates, increased online sales, and the shortage of supply in the market may have contributed to the current situation.
Installation view of Jack Shainman’s
booth at Art Basel Miami Beach 2021
Courtesy of
Art Basel
Fundamentally, the various economic conditions that currently affect the art market are not typical, so there is plenty of room for speculation.
As a fintech company, Arthena uses a quantitatively driven pricing approach to strategize and raise financial products in the art market. Madeleine D'Angelo, founder and CEO of Arthena, explains that while primary market data is less robust than auction market data due to lower pricing transparency, Arthena has developed various indices that have successfully combined sales results between the two markets, analyzing correlations between art and other asset classes, and gaining insight into the overall performance of art in times of inflation.
"According to our observation, there is a scramble in the primary market, and all people want is to expand their collections," Dangillo said. They are genuinely happy to buy the art they want, and it is only natural for them to spend the highest market price for it. She said that the current market trend reflects the irrational consumption behavior of buyers, especially the sky-high prices of several emerging artists, which make data analysis difficult to quantify. But in the end, she speculated: "I think as long as the size and number of ultra-high net worth investors continue to grow, they will continue to inject money into the art market, and this trend will not stop anytime soon." I'm pretty sure that for primary market sales, all this means that people are happy to buy art at the top of the market to get an art stock. ”
Allison Janae Hamilton. Three
girls in sabal palm forest III, 2019
Marianne Boesky Gallery.
Contact for Price
As new money poured into the primary market and the number of new collectors continued to increase, gallerists had to take protective measures to ensure the steady growth of the artist market. Selling an artist's work at an exorbitant price from the start could create a bubble and be no good for the artist's market development. Maintaining long-term client relationships is an additional factor for established galleries that represent blue-chip artists, which is more important than quick profitability in the short term.
Marianne Boesky, founder of The Marianne Boesky Gallery in New York, said: "Fundamentally, this phenomenon at auctions seems to be due to the fact that the wealthy have more disposable income than ever before, which in turn has led to a spike in the price of high-demand artists, which has little to do with inflation that most Americans feel directly." Still, the tier 1 pricing structure created and managed by galleries doesn't fluctuate based on supply and demand. We often hope that tier 1 pricing correlates with each artist's career trajectory. ”
Bosquet continued: "If we can continue to keep a clear head, then demand-driven markets will not have much impact on the primary market price of art. ”
Dashiell Manley. a failed
attempt at March (August), 2020
US$24,000
However, as with many businesses, inflation does affect the gallery's day-to-day operating costs. Bosque added: "The word inflation appeared at our recent staff meeting, and for the first time in 25 years... The truth is that the cost of materials for artists has gone up, the cost of transporting art has gone up, and the cost of every link in our business chain, from art supply stores to delivering works to customers, has gone up. In response to this, galleries are discussing a 10 percent increase in pricing across the board — but such a price increase is "inconspicuous in practice, and may even go completely undetected" — a slight increase in comparison to record prices in other areas of the market.
Sean Kelly, founder of Sean Kelly Gallery in New York, said: "Costs are peaking – the price of materials for packaging art, the price of moving art, the price of transportation, the price of logistics – everything is clearly becoming more expensive." "In this case, people have two options: either to raise the price of the work, or to eat the pressure of the cost themselves – we chose the latter. He explained that in his 30 years of experience, developing a long-term strategy for economic fluctuations is crucial.
Joseph Kosuth. 'Catharsis,
Conversion, Traumata', 1986
Sean Kelly Gallery.
Supply chain issues have also had an impact on galleries in other ways. Tina Kim, founder of Tina Kim Gallery in New York, said: "Production delays in artists' studios have happened to us several times. From canvas frames to sculptural raw materials, there have been serious lags in the delivery of goods, the transport chain has been difficult, and congestion is common. To this end, we have taken various major initiatives to ensure that the plans for art fairs and exhibitions are on track. ”
Kim continued: "Regardless of inflation, we have seen an increase in demand for works, which is also one of the factors that increase the price of artists. As demand increases, securing inventory has always been a challenge. Since the inception of COVID-19, our customer base has expanded significantly. To this end, there has been a major restructuring within the gallery to cope with the need for online sales and consulting. "She explained that in order to maintain the steady growth of the market, the growth rate of prices has long been calculated." There has to be very caution when it comes to raising the price of an artist," Kim said. "We're working with a wide audience. Considering the international nature of the market, I am confident in the pricing and believe that the price I set is healthy and reasonable. ”
However, the price of works by emerging artists in other areas of the primary market suggests that not every art dealer is taking precautions. While increased demand and shortages of supply have underpinned a bull market that is likely to continue to grow, if prices — especially those of emerging artists — soar too quickly, their market value will slip as they enter the secondary market.
Kim Tschang-Yeul.
Waterdrops, 1984
Tina Kim Gallery.
Speaking about the prices and sales rates of young artists at major recent art fairs like Art Basel in Miami Beach, Kelly warned that such speculation-based valuations are likely to be unsustainable: "People who push up prices may lose money, but artists who are betting or speculating are the real victims." ”
"We don't want to push the price of young artists into the sky," he said. We're not making bubbles, we're not speculating. Kelly explained that this approach is "likely to be counterproductive" to all parties involved.
So, how can collectors best navigate the current market?
While buying art is certainly economically viable in the long run, while also beating inflation, it is crucial for new collectors to make informed decisions when buying their works and not blindly follow trends.
Alec Soth. Crazy Legs Saloon.
Watertown, New York, 2012
"Buying art speculatively is always dangerous, and it's important not to get caught up in excessive excitement," King said, "and I think you can easily make mistakes if you follow the money." Art collecting is about true passion, a way of life. There are good, exciting artworks at all price levels. Don't invest your life savings; I would never advise anyone else to invest in art. With good and careful choice, you can live with your favorite work, and your value in art will naturally continue to rise. ”
Sibylle Rochat, founder and director of London-based art consultancy Rochat Art Consultancy, stressed that "quality is king" – especially in the current bullish art market, and collectors should be more vigilant not to "get on board" without doing research.
"Now, everything can be sold," Rochat says, "so when the market starts to adjust, all the low-quality works disappear." She explains that the art market is cyclical, with certain works no longer popular during recessions and their prices falling off a cliff.
Park Seo-bo. No. 950808, 1995
While the current art market situation is unique and the trajectory of the associated economic factors remains to be seen, one thing is clear: the art market always goes through cycles. "In times of recession, even the wealthiest people are psychologically affected by the loss of banknotes, and they tend to withdraw from their collection investments," Boski said. During this period, collectors spend less, but they do not put their excellent collections on the sluggish market. If they have the ability to hold the artwork they love, they will do it. ”
While the prospects for rising inflation and its impact are unclear, the principles for building art collections haven't changed: buy what you like, do your research well, and avoid being overwhelmed by trends.