Covid-19 's impact on the secondary market by Cristina Wang- Muys Snijders quoted.
Since the last week of January, the world has rapidly descended into a state of crisis as a result of the outbreak of COVID-19. As countries one by one declared states of emergency, public gatherings and institutions including art museums and galleries have been forced to close their doors en masse. Numerous international art fairs and related events have been postponed or canceled as well, with many companies around the world instructing their workforces to work from home to minimize potential exposure.
As businesses shut their doors, COVID-19 has resulted in not just a global health pandemic, but also a full-blown economic crisis. Heavy losses were reflected in public markets as the Dow Jones Industrial Average posted its worst-ever quarterly performance in Q1, plummeting by more than 23%. The Dow and the S&P 500 both also posted their worst monthly returns since the depths of the financial crisis in October 2008, having fallen 14% and 13% in March alone, respectively.
Workers from every industry have suffered from the immense impact of the deadly virus. Within the art industry, auction houses have found themselves particularly hard-hit, as their businesses (which rely in no small part on in-person sales) have struggled to keep pace in a newly contactless world. With art fairs being postponed and the formerly lively global auction scene essentially paused until further notice, the primary sources of liquidity for art collectors around the world have all but dried up.
Although this winter will eventually pass, the steps the auction houses take to maintain their business’ sustainability through this crisis will be critical not only in informing how they fare through the pandemic, but potentially also in how they conduct business for years to come.
This report aims to assess the impact of COVID-19 on the secondary art market, analyze the actions taken by different market participants in response to its spread, and finally to offer an opinion of the future of the art market in a post-coronavirus era.
COVID-19 CASE COUNT (as of April 3, 2020)
Worldwide: 1,087,374 USA: 270,062 (Rapidly increasing) Europe (EU & the UK): 482,016 (Rapidly increasing) Mainland China: 81,620 Hong Kong: 845 (Second wave)
As reported by the Art Newspaper, 2019 had already been an uneasy year for the global art market prior to the pandemic outbreak of COVID-19. The trade war between the US and China, along with the newly imposed art tariff, political turmoil in Hong Kong, and a protracted Brexit all led to a 5% dip in global art market sales, which totaled $64.1 billion in 2019. In terms of regional performance, the United States extended its position as the largest market. The United Kingdom reclaimed its place as the second-largest from China, with 21% share of sales vs. China’s 19%. However, given the impact of the political turmoil in Hong Kong over the second half of 2019, on a normalized basis the Asian art market might not have fallen far behind.
Regional Assessment and Case Studies
Although the art market has historically shown resilience to fluctuations across other asset classes, the COVID-19 crisis has placed the secondary art market in a uniquely difficult situation, with collectors now perceiving greater risk and less upside potential given uncertainty in the broader economic environment.
This is particularly prominent on examining trends in Post-War & Contemporary Art, which represented the largest segment of the fine art market in 2019 at 53% of global fine art auction sales by value.
Between February and March 2020, Christie’s held five Contemporary Art auctions– meaningfully less than the eight it held the prior year, which included the show-stopping George Michael Collection and an online sale in partnership with Saatchi Gallery. In terms of sales , this amounted to a $50 million or 30% decline vs. the same period the prior year — a massive reduction that likely isn’t strictly attributable to broader market declines.
Comparatively speaking, Sotheby’s Contemporary Art fared relatively better, hosting seven auctions between February and March of 2020, including three online sales and one benefit auction at the Norton Museum. However, this also represented a double-digit percentage slowdown in overall volume, relative to the 12 auctions that it held over the same period in 2019.
Although Sotheby’s was able to salvage its cancelled spring Hong Kong auctions by combining it with its New York sale, total auction sales in February-March 2020 were still down 11.4% year-over-year. The total decline in sales volume was likely even higher given the two private sales exhibitions Sotheby’s held in Hong Kong in 2019. Across regions, Continental Europe fared particularly poorly, with sales in February and March plunging to barely 2% of what was seen in the prior year period.
Bonham’s, on the other hand, demonstrated a shocking resilience to the slowdown that pervaded the rest of the secondary art market. With its primarily middle market focus, its Contemporary Art sales in February and March 2020 nearly doubled year-over-year, with an additional online sale in Hong Kong still ongoing at the present time.
Bonham’s was acquired by the British private equity firm Epiris in September 2018 and has since been aggressively changing its market approach. Over the past year it has gradually expanded its presence in major categories including Contemporary Art, Impressionist & Modern Art, Jewelry, and Luxury Handbags. This market expansion might have been key in preserving its relative stability as other auction houses have struggled to stem declines.
Although these broad-based declines could have been driven by shifts towards private sales given volatile markets, it is still highly unusual for Post-War & Contemporary Art — one of the most profitable and popular categories amongst collectors in recent years — to experience a plunge in sales as dramatic as this. One can almost certainly conclude that public auctions have been unable to shield themselves from the impact of COVID-19 in the first quarter of 2020, a trend that is likely to persist throughout the year.
ACTIONS TAKEN IN RESPONSE TO COVID-19 National lockdowns and the enforced work-from-home order have created great obstacles for the auction business to continue maintaining their normal functioning. Many auction houses employees have expressed their frustration about making deadlines, as many sectors of the in-house pre-sale chain can no longer function effectively under the remote-working rule.
At the same time, shipping has also been impacted by COVID-19. Thousands of sailings that equals 45% of the capacity between Europe and Asia and the transpacific region were canceled just in the first few weeks of the virus’s first outbreak in China. Such an impact is fatal to businesses like auction houses that rely heavily on shipping and logistical services. Even though China might be the first to recover from the pandemic, the lack of supply and international shipping could still put the Chinese secondary art market on pause for an extended time.
In the dark age of COVID-19, auction houses are actively shifting their strategies and taking actions to prevent falling harshly into the abyss of market recession.
Increased Number of Online Auctions & Postponing Major Auctions While all auction houses are under precautionary closures to public right now, business is still running behind the closed door. Many sales are moved to online-only till June. However, it seems only collectibles like prints and multiples, luxury goods like watches, jewelries, and handbags are being offered online so far. Major “money-getter” sales such as Post-War & Contemporary Art, Impressionist & Modern Art, and single-owner collections have all been pushed back to the second half of the year.
Change in Staffing Without enough sales volume being conducted, auction houses are also going through a challenging time financially. Last week, Christie’s and Sotheby’s have announced that they would be furloughing some of their staff and putting the rest on pay cuts due to challenges posed by the coronavirus pandemic. Similar actions have also been taken at other auction houses and galleries.
REFLECTIONS & THOUGHTS
Collaboration Between the Primary and Secondary Markets Even though COVID-19 has imposed tremendous unexpected hardship to the art industry, this difficult time has also brought people and business together more than ever. Christie’s Employee Initiatives Organization (Christie’s CSR) is launching an online “silent auction” in partnership with young galleries and artists that no longer have access to public exhibition spaces. 75% of their total sales will go directly to artists and 25% will go to GlobalGiving’s Coronavirus Relief Fund. Such practice not only provides support to the local artistic community in need, but it has also brought the long parted primary and secondary art market together by uniting galleries and auction houses. As Elizabeth Dee, founder of the Independent art fair points out, “we can combat deep-seeded issues that have been brewing for years. Ever acute under this crisis. And we can do it in a unified way because, unlike in 2008, we can stay connected virtually as we weather this storm.”
Technology By the frequency you click on the “Zoom” icon on your laptop screen, you already know that the coronavirus has brought the notorious antiquated art industry to a new era. For example, in response to the fair cancellation, Art Basel Hong Kong launched online viewing rooms for clients to participate virtually. Although the results were still not ideal and could not be compared to previous years’, the online platform has offered a more efficient and welcoming viewing/shopping experience directly between the dealer and the buyer, even without the noisy surroundings. As it is now impossible for specialists to schedule any in-person meetings with clients due to rising health concerns, maintaining communication with clients and earning their trust through a computer screen has never seemed so important than before.
Speaking of the art of online sales, the Chinese are already ahead of the game. Li Jiaqi, now known as the “King of Lipstick in China,” has made himself a millionaire by selling lipstick and beauty products through Taobao’s live-stream services. During the coronavirus outbreak, a number of companies sought Li’s help in reviving sales. Li showcases an exuberant salesmanship that is fundamentally different from the traditional white-glove auction house service, and this could be the key to a new sales channel. In this case, COVID-19 might also be a catalyst to help the antiquated art industry to move into a digital age.
New Business Opportunities Every cloud has a silver lining. As the economic market quickly plunges, many investors are now seeking more diverse assets to cash out, and art is definitely one of them. As dealers and auction houses struggling to sell more than ever, collectors can now have the opportunity to purchase works at bargain prices.
The COVID-19 outbreak has also tested the financial strength of museums around the world, as they are losing millions of dollars every day having their doors shut. This could also be an opportunity for auction houses to work with these public institutions to help to sell deaccession artworks.
The art world lives on three “D”s: death, debt, and divorce. And the coronavirus has brought them all. At the end of the day, we cannot control our lives, but we can certainly decide what kind of environment we live in, and having some beautiful art on the wall doesn’t sound too bad.
CONCLUSION & LOOKING AHEAD
COVID-19 has swept across the world with unexpected lightning speed and left no one in peace. Our own lives are under threat, while our health care system is on the verge of collapsing. It is a dark time for everyone. As for the art industry, although the crisis has brought unprecedented challenges and uncertainties to the market, the question of how we survive remains in our own hands. Though a desperate time indeed, COVID-19 also reveals opportunities and potentials that have been neglected beneath the surface. Now is the best time for the entire art industry to unite together for a better and healthier future.
“We are living in a Dutch still-life painting,” says Muys Snijders, Bonham’s Head of Contemporary Art department, “where you see a skull right next to some blossoming flowers.” And the death of the outdated will eventually give light to the birth of a new ecosystem.
 Anny Shaw, “Art Basel/UBS report: global art market dips 5% in ‘tricky year’ but private sales are up,” The Art Newspaper, accessed April 7, 2020, https://www.theartnewspaper.com/news/trade-wars-and-political-unrest-contribute-to-tricky-year-as-global-art-market-dips-5-to-usd64-1bn “The Art Basel and UBS Global Art Market Report 2019,” Art Basel, accessed April 7, 2020, https://www.artbasel.com/news/art-market-report Clare McAndrew, The Art Market 2020 (Art Basel, 2020), p.31, https://d2u3kfwd92fzu7.cloudfront.net/The_Art_Market_2020-1.pdf Ibid., p. 125  “Understand the Implications of Coronavirus in Freight Shipping,” Hillebrand, accessed April 5, 2020, https://www.hillebrand.com/media/publication/covid-19-impact-shipping-industry Helen Holmes, “Christie’s and Sotheby’s Furlough Staff as Coronavirus Sharply Impacts Art Sales,” Observer, accessed April 6, 2020, https://observer.com/2020/04/christies-sothebys-furlough-staff-cuts-coronavirus/ Elizabeth Dee, “We Don’t Know What a Post-Coronavirus Art World Will Look Like. Here Are 6 Ways We Can Come Together to Build the One We Want,” accessed April 6, 2020, https://news.artnet.com/opinion/elizabeth-dee-op-ed-covid-1811637 Alice Huang, “Who is Millionaire Li Jiaqi, China’s ‘Lipstick King’ who raised more that US$145 Million in Sales on Singles’ Day?” accessed April 8, 2020, https://www.scmp.com/magazines/style/news-trends/article/3074253/who-millionaire-li-jiaqi-chinas-lipstick-king-who
WRITTEN BY Cristina Wang - Auction house professional and Founder of Art Speak, a platform that focuses on art market insights and art history stories.