The Gray Market

shining a light on the shadowy fine art industry

Apple + the Art Market

What can the Apple Watch–particularly a $17,000 Edition model–tell us about fine art sales right now?

I started thinking about this question after watching the video embedded above. (Note: You'll have to click through the 'Read more' button to see it if you're just on the general blog page.) It’s a 16-minute presentation by NYU Stern School of Business professor Scott Galloway at this year’s DLD (Digital-Life-Design) Conference. Galloway’s topic is what he calls the Four Horsemen, or the four most dominant companies in digital today: Amazon, Apple, Facebook, and Google.

Together, the Four Horsemen carry a market cap of $1.3B in their saddlebags, a number higher than the GDP of South Korea–and still, that number probably underrates their collective impact on our lives.

While I’m enough of a geek to think that the entire presentation is fascinating, its circuit to the art market starts crackling to life at 11:00 in. That’s the point where Galloway uses the Apple Watch to pivot into the idea of Apple as the world’s most powerful global luxury brand.

If you don’t have the time, energy, or patience to watch Galloway do his thing, the quote I’ve pulled out below drills most of the way to the center of his thinking:

“Rich people are the most boring people in the world. They smell, look, and feel alike. They all fly British Airways, wear Hermès, and party in St. Barths… Luxury brands are able to go global faster because rich people aspire to the same things.”

Galloway goes on to argue that the allure of luxury items is the “self-expressive benefit” they offer. But I think that terminology actually detours away from what he’s really suggesting: that luxury items are internationally recognized status symbols because of an evolutionary trigger. He hits the target more squarely when he argues (I’m paraphrasing a bit) that all businesses are designed to appeal to only three areas in human beings: our survival calculus (i.e. our brains), our ability/desire to love (i.e. our hearts), and our desire to propagate (no i.e. needed). In his words, “As you move down the torso, the margins get better and the business gets better. Luxury is in the business of propagation.”

Another way of putting it: The allure of owning luxury goods isn’t that they express a unique “self.” It’s that they attract the desire (and/or envy) of others, worldwide, who intuitively understand their financial meaning–and therefore, how their own lives could benefit if they work their way into the owner’s orbit.

The DLD Conference happened in January, but I didn’t see the video until last week–the same week that portions of Dr. Clare McAndrews’s 2015 TEFAF Art Market report leaked. You can now buy the full report here. However, if you just want enough highlights to know if I’m hallucinating about the connection between art sales and Galloway’s Apple analysis, you can keep your credit card in its holster for now thanks largely to artnet and Art Radar.

In its annual quest to define the state of the global art market with hard data, the latest TEFAF report concluded that the total art market in 2014 reached an all-time high of 51B EUR in sales, up 7 percent from 2013 and 3B EUR from the industry’s previous record in 2007. Yet the number of transactions needed to reach this historic high actually REDUCED, from 50 million in 2007 to only 39 million in 2014. In short: Collectors paid more money than ever for less artwork than ever, meaning the average cost per piece has never been higher.

Results in the auction sector add dimension to that finding. Lots priced over 500,000 EUR comprised 58 percent of total auction market sales by value in 2014, up from 54 percent in 2013. The 1,530 auction lots priced over 1M EUR accounted for 48 percent of the sector’s value–but those 1M EUR works were created by only about 800 artists. On top of that, a mere 54 artists saw their work auctioned for over 10M EUR–all of which means that the industry soared to these new sales heights mostly because of the overwhelming commercial seduction of just a few artistic “brands.” That pretty clearly cements the “luxury” side of the comp to me.

So what about the “global” side? It turns out that just over a third (39 percent) of all global art sales by value took place in the US, while 22 percent happened in the UK, another 22 percent in China, and 17 percent were scattered across the rest of the map. These results essentially held serve from last year, when the US accounted for 38 percent, the UK for 20 percent, China for 24 percent, and everyone else 18 percent.

More importantly, domiciling the sales in this way only tells a part of the globalization story, because it says nothing about where the BUYERS are based. Even a drunk-and-distracted browse through art market recaps of the past year will tell you that the clientele is more worldwide than ever. And perhaps the best indicator of that idea in the TEFAF report is its capture of 180 “art fairs with an international element” in 2014–the top 22 of which lured over one million visitors combined, and the transactions at which accounted for 21 percent of all dealer and gallery sales by value. Globalism: check.

Add up all of the above, and what did the art market look like in 2014? A top-heavy industry where, all around the world, the very rich chased the works of a handful of highly sought-after brands, paying more than ever for what those brands produce because said products qualify as internationally recognized status symbols.

Now what does that sound more like to you: a financial market/asset class, as so many people are spending so much time trying to transform art into… or luxury retail?

I know my answer.