Welcome to a debate about how the wider economy has impacted on art in 2008 and the implications for the art economy in 2009.
We can all learn by sharing and I'm very interested in your views too so please don't hesitate to add your comments at the end.
Art and the economy
To be blunt, a lot of this post is not a comfortable read. Those of you who only want to think about the seasonal festivities right now should stop right here and defer your reading until next week!
I may risk being called a doommonger with this post - however I'd just ask you to note that my language is positively temperate compared to that found in Alan Bamberger's recent and very incisive article Art in the New Economy which I read only as I finished this post. So nice to get some confirmation that somebody else shares some of my views about where we are right now and where we're going!
The reality is some facts are real scary. However, we live in exceptional times and my preference is to say it as I see it - just as I did 12 months ago when I predicted the credit crunch would hurt the art economy in 2008 and a recession may well happen.
the credit crunch will have a significant impact on the art market and what gets blogged by those marketing their art online. The credit crunch is already having an impact on the housing market and the purchase of decorative art. I predict that it will continue to bite and a recession may be just around the corner - which will inevitably impact on those selling art and using their blog to do so. Those who will do well and survive/continue to sell during a difficult period are those who keep focused on the customer and the bottom line in both the short and longer term.You plan to fail if you fail to plan. I'm personally finding economic prospects less scary because I've been watching what's been happening for a long while now - ever since my own personal run-in with the credit crunch in 2007 (see Northern Rock - drawings from the front line.)
Blogging Art in 2007 - A Review (Part 1)
You may find some of my predictions for 2009 to be unpalatable. However they are based on continuous observation, a considerable amount of research and reading throughout 2008 plus a good understanding of the dynamics of business. In order to work out how to ride out the storm, my feeling is that it's crucial to become well informed and to understand the risks that will be present and the scope of what may well happen. There are no surprises when you appreciate how much could change.
In the last three months we've faced the worst economic crisis of our lifetime - and it's not over. Let's be real here. This is not a 'slowdown' or a 'downturn'. For some reason both those words always make me think it could all be over next week or next month - and I guess I'm not alone. The reality is that the UK, the USA, Germany and Japan are all in recession and we are now entering a global recession which is going to last quite a while and which may still turn into a depression. Government action may have averted a financial armageddon in 2008 - or it may just have deferred it.
Some numbers bring home the immensity of what has happened (see Ten mind-boggling statistics from the credit crunch ). The credit crunch has so far cost the global economy about £1.8 trillion ($2.7 trillion) - and that's before the global recession impacts on the non-banking sectors and any further bail-outs. That figure is the equivalent of 25% of the value of Britain's entire economy. In Britain, a conservative estimate of the cost of to government funding to prop up failing banks is £500,000,000,000. That equates to a cost of c.£8,000 for each person in Britain. That's on top of the record levels of average household and personal debt of c£60,000 which Brits were already carrying.
What has happened so far has very understandably scared an awful lot of people. As a result people have stopped spending. Partly because, they can't find a replacement for their cheap mortgage, or have lost their home or have just lost their job or because they're worried they might lose their home or their job or they know people who have been personally affected or they're just plain scared about what awful unthinkable thing will happen next. Some of course will already have lost their credit cards. Those who thought they had money are now beginning to see major financial frauds unravel, while smart investors have experienced huge falls in the value of their portfolios and people who have been prudent and thrifty are now being penalised by a financial strategy which means interest rates are falling to zero.
Put bluntly - this is not an environment which is conducive to making people want to go out and spend money on art. Very serious collectors with cash to spare are probably gearing up for a killing but a lot of smaller collectors will just stop buying.
When people stop spending we really find out how true the old adage is - that something is only worth what somebody is prepared to pay.
The gloom will continue in 2009. Based on evidence from the last quarter of 2008, we are going to see and experience a massive shake-out across the economy in 2009.
Property values have already plunged but prices haven't stopped dropping and will continue to drop for the next two years. Revenue sales of big ticket items and household goods have fallen by really dramatic amounts. In the UK, the High Street is being hammered and more big casualties in the retail sector are imminent. The discounting and sales prior to Christmas have not done the job and the cash is running out. Many retailers are on the verge of bankrutpcy right now and the expectation this week is that around 15 national and regional retail chains will fail during January in the UK. Your jaw will drop when you find out which names are in the frame. The firms that deal with such things already know which are most at risk from an analysis of the debt markets and have already prepared the insolvency packages of help which will be required. Administrators will then clear stock out at rock bottom prices contributing yet more information to the consumer perspective on what something is worth. We're beginning to see major lay-offs across various business sectors and unemployment is set to rise very significantly. Industries are beginning to find out whether or not they will get bailed out and the reality is that a lot of businesses won't be. In the USA, people in major silicon valley firms are already accepting significant pay cuts in order to preserve jobs. Fat is now being trimmed back to the bone. The cost profiles of doing business are being cut right back so that they're in line with the projected reductions in revenue - but it may not be enough. Good businesses will definitely fail in 2009 if people are too frightened to spend.
Sadly, the reality is that things won't start getting better until they've finished getting worse - and that won't happen for a while. Most of the predictions suggest that, at the very least, 2009 is going to be a shocking and unpleasant experience for an awful lot of people. If we're out from under the full repercussions of the recession and into recovery by the end of 2010, we'll be doing very well indeed.
That's the backdrop to changes in the art market and the art economy. Essentially it means that whatever happened in the art economy prior to October is now totally irrelevant.
Art and the economy in 2009 - implications for change
The implications of these changes in economic behaviour are significant for the art market. In relation to price and value I predict that:
- The peak in prices for contemporary art has past. There will now be a very sharp and profound correction in the art market for 'high value' contemporary art (already begun). Speaking personally I regard this as akin to the other bubbles which have burst. In my opinion the market is finally coming to its senses. What has gone on in the recent past was the crazy phase - we're moving back towards 'sensible'.
Just three months after his factory-to-auction sale "Beautiful Inside My Head Forever" yielded $200 million at Sotheby's in London, Damien Hirst's market is in decline, reports Bloomberg.
Art Info - Hirst Market in Decline, Say Researchers
- Collectors with cash will now tend towards a flight to quality and security. Investment will tend to favour old masters whose value has been sustained over decades and dead artists who won't flood the market with new work. Collectors who were advised to invest in contemporary art in order to diversify risk and hedge against falls in the value of their other assets in stock and properties might start to wonder whether their art adviser was related to their investment banker and how much financial benefit they both derived from fees associated with every recommendation to buy!
- Art is going through a process of devaluation. The value of art for sale will be constantly reappraised by artists, art advisers, auctioneers, curators and gallery owners. The reality is nobody knows how much anything is worth right now and the auction houses will no longer issue guarantees. 'Expert opinion' may well be devalued in a major way. I'd expect a resurgence in the value attached to the opinion of the academic art critic who is not attached to an auction house or gallery.
- Art will continue to sell but only after prices have found a level at which people will buy. This is likely to be an ongoing process influenced by the overall state of the economy. Buyers are currently getting used to very heavy discounting and will soon become very used to 'everything must go' pricing. It all influences their perceptions of what something is worth.
- A lot of significant art will come to the market in 2009 by those forced to sell. Significant individual items or prestigious collections will have to be sold to satisfy creditors or repay loans. This will further accelerate the art market devaluation. There are no emerging art market saviours out there any more - even the Russian Oligarchs are now looking for bailouts as the value of their companies have collapsed! Some collectors may be horrified by the losses they experience at sale. Some art advisers may find their reputations suffer. Some might need very good lawyers.
What kinds of value will buyers be looking for? Excellence, quality, productivity, dedication, commitment, reputation, pride in workmanship, these sorts of things-- the values that made America great-- standards that have sadly been lost in the shuffle of our greed-is-good, hard-work-is-for-losers, every-man-for-himself, party-party-party attitude towards life.Business models for all those involved in the art economy will need to be reviewed and probably revised if this has not happened already.
Alan Bamberger - Art in the New Economy
- Business will not be 'normal' and margins will be cut for all those involved in the art business and art economy. Margins from the recent past are unlikely to be achieved even if a business ultimately survives the recession.
- Art businesses risk losses and jobs will certainly be lost. Sustaining an art business will depend on the ability to generate income to service debt, the strength of reserves and the adequacy of working capital - the ability to pay wages and bills. In generic terms, those most at risk are businesses without adequate reserves and with heavy debt burdens and/or a need to find new loans at reasonable interest rates. They're likely to go out of business PDQ. Many of the galleries experiencing poor levels of sales in 2008 have already closed. If the falls in revenue sales experienced elsewhere are seen in the art market then it is absolutely certain further galleries will close - which in turn will reduce job opportunities for some artists.
If the art economy is as bad as it looks—if worse comes to worst—40 to 50 New York galleries will close. Around the same number of European galleries will, too. An art magazine will cease publishing. A major fair will call it quits—possibly the Armory Show, because so many dealers hate the conditions on the piers, or maybe Art Basel Miami Beach, because although it’s fun, it’s also ridiculous. Museums will cancel shows because they can’t raise funds. Art advisers will be out of work. Alternative spaces will become more important for shaping the discourse, although they’ll have a hard time making ends meet.
As for artists, too many have been getting away with murder, making questionable or derivative work and selling it for inflated prices. They will either lower their prices or stop selling. Many younger artists who made a killing will be forgotten quickly. Others will be seen mainly as relics of a time when marketability equaled likability. Many of the hot Chinese artists, most of whom are only nth-generation photo-realists, will fall by the wayside, having stuck collectors with a lot of junk.
- Artists will need a different business model. Artists with a portfolio of income streams are more likely to survive the recession. Artists dependent on one main channel for sales - such as a B&M Gallery - could find they are a hostage to fortune. Very many artists are already placing more emphasis on exhibiting smaller works to make their art more accessible and affordable (already started judging by recent exhibitions in London). I expect more artists will look very carefully at a gallery's ability to sell work. Artists at the high end of the market are now seeking a different relationship with galleries and are using agents to negotiate commissions and place their art with different galleries to avoid long term contractual tie-ins. Given the fragility within the marketplace, this might possibly become a model which has some mileage for artists at other levels of the market. From the Galleries' perspective, as well as good quality art which communicates its value to clients, they are certainly going to be looking for a credible CV and/or a good track record of sales prior to taking on new artists.
- Some suppliers of art materials will not survive the recession. Buyers of art materials are now looking for very significant price discounts on materials and/or shipping (already begun). Online suppliers are likely to be better placed so long as they're not burdened with stock on their balance sheet that they can't shift. Expect local art shops to be hard hit. If I were a major art supplier I'd be creating a very helpful and informative art blog which mixes information for artists about art materials with news of new products and offers.
- Sponsorship for exhibitions, art competitions and prizes will be reviewed. Business providing sponsorship for the arts will be under pressure to review the availability of support.
- Art tutors can expect demand to change and reduce. Tutors may well find that workshop registrations will struggle to achieve the same levels as experienced in previous years. Tutors may need to schedule rather more one and two day workshops where people don't need to leave home to attend.
On a more positive note....
I expect that:
- artists whose work is bought by people "with money" are less likely to feel the impact of the recession.
- artists who are skilled in communicating with their customers in a variety of ways will reap a reward in 2009
- popular artists whose art makes people feel good are likely to sell well
- artists who have good relationships with their collectors will continue to achieve sales.
- artists with established following online may well be less affected than those selling through galleries.
- popular teachers who communicate well and are supportive and give good value will continue to have people sign up for their workshops
- good information will be well received by artists who want to know more about what is 'good quality' and what is 'good value'
- speculative punts on expensive new art supplies will be all but eliminated - we want to know more about them up front (I've just answered an email from somebody asking me about something I'd reviewed!)
- artists will be keen to have information about who is delivering the best price
- People who help artists survive the tests their businesses will face should get good audiences for what they have to say
- Galleries which have been around a long time and have a big and well managed customer list are likely to survive. Particularly if they also deal in the art which people like to buy.
I also have a personal hunch that comfort art associated with a comfort culture will do better in a recession. It's the low key version of what is going on at the high end of the market. Just as the credit crunch and recession is having an impact on dining habits (more dining at home and a huge increase in the consumption of very traditional comfort food) I think we can can expect a similar impact on art which sells on the high street and online.
I predict that:
- affordable art will be judged to have a potential 'lipstick effect'. When people can't afford to make big purchases they buy something which they can afford and which makes them feel good.
- there will be a resurgence in figurative art of the sort which has an underlying narrative which people can connect with. In London we'll see an end of the paintings and prints of bankers in the city and men in white shirts and braces (very popular in London in recent years) and more images of home-making (to substitute for the property moves), images associated with traditional values (as reassurance) and people overcoming challenges (as inspiration).
- spending may well favour more traditional decorative art with a hint of fantasy and what makes makes you feel good - the visual equivalent of Strictly Come Dancing if you like (which might explain the source of Jack Vettriano's initial success?)
- Art which incorporates warm / sunny / feel good colours can expect to generate better levels of sales - again, it's the red lipstick effect! The appetite for the grim and/or miserable and/or sombre will be diminished. I'd expect the trend for mono and one colour to be supplanted by bright colours and landscapes and seascapes that look like holidays and refresh the eye.
Fine art printmakers could potentially do better than those producing one-off original pieces. The business model of a printmaker is much more attuned to the challenges artists are likely to face - the art is more affordable even for high quality print-making and if you produce a popular image it can keep on generating revenue.
Your personal end of year review
For people who are interested and/or feeling like the end of the year is a good time to review their approach to doing business, I've been writing posts all year about how artists can meet the challenges presented by the current state of the economy. Plus I created an information site - Art and the Economy - Resources for Artists
You may find a read of some of the following to be helpful to any personal review
- What should artists do about marketing their art in a recession? (23 January 2008) - this discusses possible strategies for artists in a recession
- What happens when you annoy eBay sellers (Feb 2008) - comments on the recent financial performance of eBay and changes to the way it does business
- What should artists do about marketing their art in a recession? - Part Two (3 April 2008) - which commented further on the changes in economic behaviour.
- "Art Business - Resources for Artists" has had a major revision (28 April 2008) about the revamp of my information site and the addition of new modules
- Fine artists in decline in the USA? (3 July 2008) - about the decline in the number of fine artists in the USA
- The art of economising - on art materials (22 July 2008) - practical tips on how you can make your stick go further and keep costs under control when you buy new art materials
- Art values - gold standard or more derivative rubbish? (15th September 2008) - published on the day that Merrill Lynch was taken over, Lehman Brothers declared bankruptcy and banking shares took a major tumble all around the world - and Hirst had his auction at Sotheby's I queried why top end art values have surged ever upward in the last 12 months.
- Contemporary Art as a Hedge Fund (September 2008) - in which I compare some contemporary art to the unwarranted valuations of derivatives - Warren Buffet's "financial weapons of mass destruction"
- Taking action after the bubble has burst (30 September 2008) - posted the day after Bush announced the world was in grave peril.
- Managing Business Risks as an Artist (1st October 2008) - about how to manage risk better and make and market art in a challenging economic environment.
- 10 good habits for good times or bad (7th October 2008) - about 10 good habits for running your art business which are particularly relevant when the financial picture looks bleak and you need to know you're making the very best use of your time and resources.
- Government seizes control of Singer & Friedlander (10th October 2008) - about the impact of the banking crisis and the looming recession on the sponsorship of art competitions and prizes.
- What happens to artists in a recession? (16th October 2008) - which offers different perspectives on the practical impact of a recession
- Bright spots in the gloom and doom (24th October 2008) - time to focus on things we can be cheerful about!
- Making art and selling art - communities of interest for artists (24th November 2008) - looks at the rise of blogs and websites in 2008 which represent communities of interest for artists for selling and marketing art
As this post didn't quite turn out as I expected, I'm going to produce Part 3 after Christmas. This will deal with the wider issues concerning art and the internet.
Links: Blogging Art in 2008 - A Review (Part 1)