(2) The New Economy; Decorative Arts as Assets
August 13th, 2011 by admin
I enjoyed the study of macro economics in college, but real life experiences tend to clarify how much you really don’t know (and my oversight of micro economics). It sounds a bit like being in the decorative arts business most of your life. I always believed these objects would develop an economic asset model with a bid/ ask marketplace for valuation, trade, and liquidation. If you build it, will they come?
As a dealer in the decorative arts, the changes that have transpired in how the industry operates are a story of the fall of great dealers and collectors over the last centuries, to the auctions. It happened pretty clearly with implementation of the buyer’s premium and an inherent conflict of interest was introduced and ultimately imposed on the trade and public. It finally took a conviction by the government to slap the hands on the Sotheby’s/Christie’s duopoly’s conflict of interest. Along with deceptions like a secret reserve, these distortions affect the real valuation of these items.
Auctions are just rigged distress sales because there is no true marketplace. The irony is that the strongest growth coming from the Sotheby’s/Christie’s duopoly is their private treaty/faux dealer way of doing business. But it shows that they understand the evolving nature of our industry and are accepting dealer functions, and having skin in the game can be profitable. The economic model for dealers requires a consumer who pays and takes possession. The economic model for openly trading would allow dealers to negotiate pricing, terms, and transport; all services to the consumer. The problem is where are the consumers for these fine works of art and how will dealers survive?
We are all consumers and it should take one to know one. My vision on this ‘science” of economics is blurred at best! Why is the general public so apprehensive about these items when they are accessible and reasonably buyable? Where is the invisible hand of Adam Smith? Aside from currents of taste and style, unfortunately there is no true marketplace available for pricing and negotiation.
The 1st Dibs method is a proven successful challenger to the auction format. It allows a more natural process without conflict of interest, but it is severely lacking in the competition for higher priced and more discriminating quality inventory. This should be the area ripest for marketplace opportunities and potential profits as a dealer. The decorative arts need a place where valuation and sale are made convenient and available.
Aside from the logistical inefficiencies of the present decorative arts market, in the end it comes down to a confidence that investing money in this form of asset will be safe and productive both aesthetically and financially. The value received from a good period table, chair, or any well designed item should be tangible. Measuring a return on investment like any form of an asset, be it a common stock, real estate, or a set of 18th Century English chairs requires expectations based on a mix of knowledge and emotional decision making. All forms of assets inherently fluctuate in value over time; the decorative arts fit that categorization as much as any and warrant capital as an asset investment too.
phillip lederer wrote on 08/22/11 at 12:21 am :
First, I do not know much about the duopoly’s machinations, aside from the newspaper reports of Taubman et als price fixing case and the observation that buyers premium are set a very high levels. I also do not understand why they continue to have a large market share given that there is lots of competition between auction houses.
Having said that, I do not understand your comment that “Auctions are just rigged distress sales because there is no true marketplace.”, but in almost all financial markets, auctions are used to buy and sell, and are recognized to disclose market prices. In many countries, Australia in particular, houses are almost always sold my auction. Why are auction markets involving antiques any different from the functioning of those markets? Are you suggesting that the prices revealed by the duopoly are not representative of market prices? If so, can you explain why?
admin wrote on 08/22/11 at 8:33 am :
Thank you for your comment and I will explain why I believe that the auction process in this industry is not a proper environment for realizing a fair market price.
Primarily there are two methods the duopoly instituted that distort pricing. First is the secret reserve price which allows bidding but the item cannot be purchased. By not starting an auction at a minimum acceptable price, as in real estate auctions, the process is started with a deception meant to “goose” the price up to the secret reserve. This process is fostered by the second deception in the procurement of bids by the auction house against a lone bidder through “chandelier bidding” where the auctioneer is bidding up the price to the secret reserve.
A true market price would be realized if such false and misleading practices were eliminated. The duopoly (Sotheby’s and Christie’s) developed these methods and institutionalized them in this industry only. You don’t see these methods instituted in real estate or any other auction process like commodities or government bond auctions. The minimum is always disclosed at the start of the bidding process. Players in those other industries wouldn’t stand for such deception in the auction process. But only in the art and antiques industry has this duopoly implemented these and other methods that distort pricing. Collusive activities like the irrevocable bid (look that up) are blatantly manipulative, and receiving commissions from both the buyer and seller (seller’s commission & buyer’s premium) only add to the conflict of interests that can distort pricing.
There are many more instances of how the auction process in this industry is corrupted by such activities as advances to consignors, undisclosed ownership interests, and now offering to act as a dealer with private treaty sales. In a true auction process, these actions would have to be eliminated in order to give a real marketplace valuation. It also shows the dangers of having too much control and dominaton of any industry, like the duopoly in this industry.
Gareth Davies wrote on 04/5/12 at 1:05 pm :
As a dealer in period furniture, I have to recognize that demographics are dictating the marketplace. Auction houses may or may not be ‘rigged distress sales’, but there’s no escaping the fact that ‘baby boomers’ and even more so, the parents of baby boomers, are moving into smaller homes, changing the style of their interiors, and adjusting to, well, getting older.
There’s a ton of ‘stuff’ coming on the market, and not enough demand to take up the slack.
Auction houses answer the need to just get rid of belongings quickly, ‘period Georgian’ or not.
A dealer uses his or her eye and knowledge to pick the plums of these ‘distress sales’ and market them at a more leisurely tempo to those with taste and money.
There is always a demand for, and appreciation of, items of quality and rarity. Granted, a shrinking demand.
It’s a tough market, but, as ever, for those dealers willing to sit through countless hours at auctions, and rummage through junk shops, or estate sales, opportunities abound.
Established dealers may also help old clients by selling items on consignment. One must, however, be willing to turn away items which are unsaleable in the current market, EVEN IF THESE ARE ITEMS THE DEALER SOLD TO THE CLIENT TEN YEARS AGO ! (sorry, just making a point)
Things have changed, and there’s no way to fight the market !
The other challenge, at least in Vancouver B.C., is finding shop space cheap enough !
It seems ‘the Gap’ and ‘starbucks’ monopolize any ‘high street’ location.
Greatestcollectibles.com wrote on 07/27/12 at 6:24 am :
I agree the auction firms are making it harder and haarder for dealer to make a living. Now that information is available oline anyone can see wnhat the dealer is paying and assume that the dealer is a crook because they are trying to make any prfit at all.
As time goes on more and more dealers will have a harder to time trying to sell their items.
Nice post.
thanks, greatestcollectibles.com