http://www.artmarketmonitor.com/2015/07/30/if-contemporary-art-is-so-great-why-doesnt-anyone-make-any-money/ If Contemporary Art Is So
Great, Why Doesn’t Anyone Make Any Money?
by
Marion Maneker
James Tarmy digs into Magnus Resch’s startling
look at the economics of running an art gallery. The result
isn’t pretty. After reading the book, Tarmy says, “It turns out
that the upbeat world of biennials and art fairs and parties is
in fact a cutthroat, antiquated, deeply flawed industry hampered
by an obsession with keeping up appearances and an often
misguided aversion to making money.”
Here are some more of the
startling things Tarmy discovered in Rensch’s book:
Fifty-five percent of the
galleries in Resch’s survey stated that their revenue was
less than $200,000 per year; 30 percent of the respondents
actually lost money; and the average profit margin of
galleries surveyed was just 6.5 percent.
In the U.S. and Germany, the
physical cost of an exhibition space was listed as
galleries’ greatest expense (in the U.K. it was second),
and Resch writes that “the almost unanimous, and
unquestioned, conviction that central premises in a major
city are essential simply cannot be justified with an
economic rationale.” In other words, collectors will go
wherever the art is, and everyone else—the inevitable crowds
at openings, the passersby who pop in to see whatever’s on
view—has no bearing on the gallery’s bottom line.
Galleries generally split the
sale of a work 50/50 with the artist. Resch argues
that—given that galleries often have to cover marketing,
production, shipping, and insurance costs—it should be
closer to 70/30. Cue artist outrage.
http://www.bloomberg.com/news/articles/2015-07-30/why-do-so-many-art-galleries-lose-money- Why Do So Many Art Galleries Lose
Money?
The art business is booming, but
many galleries are barely getting by. One German expert thinks he knows
the answers
by James Tarmy, July 30,
2015 — 10:38 PM BST
The exterior of
New York’s Wallspace gallery, which announced it
would close next month. Source: Object
Studies, New York via Bloomberg
On Tuesday, the highly respected
Wallspace gallery in Manhattan’s Chelsea neighborhood
announced it would close its doors permanently on Aug. 7.
The lease was up, and “it necessitated a reevaluation,”
said Jane Hait, who co-founded the space with Janine Foeller.
“It’s a particularly tough climate for people doing work
that’s not necessarily super commercial.” The closure of
such a celebrated fixture of the New York art
scene underscores the fact that—despite the
unprecedented avalanche of money blanketing the
contemporary art world—it’s surprisingly difficult for
galleries to make money.
The news of Wallspace’s closing comes just weeks
before the English release of
Management of Art Galleries, a slim, Day-Glo orange
book that caused a
furore when it was published in Germany last year.
Written by a 31-year-old German entrepreneur/professor/art
adviser named Magnus Resch, the book argues that most
galleries are undercapitalized and inefficient, and
moreover, that with McKinsey-like business strategies (Resch
went to the London School of Economics and the University of
St. Gallen, in Switzerland), the entire art market could be
turned into a profit-generating machine. “I could have just
said, ‘The revenue numbers are terrible,’ but rather than
being so negative I’m actually offering solutions,” Resch
says in an interview. “It’s based on the analysis that I
did.”
Magnus Resch, who authored the controversial
book Management of Art Galleries.
Source: Magnus Resch via Bloomberg
Under different circumstances, Resch’s claims would probably
have been waved away, but in what’s close to a first for the
gallery world, he has the data to back them up.
Last year, Resch sent out an anonymous electronic survey
to 8,000 galleries, and more than 16 percent, or about 1,300
people, responded with information about their revenue,
number of employees, and location. (The original version of
the book included data for just Germany. The English
translation includes data for the U.S., the U.K., and
Germany.)
The results are grim: Fifty-five percent of the galleries
in Resch’s survey stated that their revenue was less
than $200,000 per year; 30 percent of the respondents
actually lost money; and the average profit margin of
galleries surveyed was just 6.5 percent. (Lest a critic
argue that the pool was too skewed to rural galleries
selling crafts, or decorative arts galleries buckling under
the weight of their unsalable Louis XV chairs, 93 percent of
Resch’s respondents represent contemporary art galleries.)
After laying out his data and methodology, Resch
isolates what he considers galleries’ key impediments to
profitability.
The Rent Is Too
High In the U.S. and
Germany, the physical cost of an exhibition space was listed as
galleries’ greatest expense (in the U.K. it was second), and Resch
writes that “the almost unanimous, and unquestioned, conviction
that central premises in a major city are essential simply
cannot be justified with an economic rationale.” In other words,
collectors will go wherever the art is, and everyone else—the
inevitable crowds at openings, the passersby who pop in to see
whatever’s on view—has no bearing on the gallery’s bottom line.
Paying a premium for a desirable location, according to Resch,
is therefore pointless.
Artists Make Too
Much Galleries
generally split the sale of a work 50/50 with the artist. Resch
argues that—given that galleries often have to cover marketing,
production, shipping, and insurance costs—it should be closer to
70/30. Cue artist outrage.
Gallery Staff
Make Too Little This is an
interesting one. Resch discovered that the more a gallery spent
on employee salaries (percentage of revenue allocated to
employee salaries vs. profit margin), the more profitable the
gallery became. In one respect, this makes intuitive sense: Once
a gallery is successful, it can afford to pay its employees
more. But Resch says that higher pay, tied to performance, is a
greater incentive—the more money employees make by doing well,
the more they want to succeed.
Everyone Is
Selling the Same Thing Resch
points out that the vast majority of galleries were competing
for the same, tiny world of contemporary art collectors.
Diversify, he suggests. This is easier said than done, though:
Sure, the contemporary collector base is small—but the
group interested in other periods (11th century illustrated
manuscripts, say) is even smaller. That’s basically why everyone
is selling variations of the same art; it’s simply what
collectors want to buy.
Resch has other points—galleries
are terrible at marketing and branding; they’ve done a horrible
job of expanding their collector base; they’re not active enough
in the secondary market; they fail to innovate their business
models in any measurable way—but those are less connected to the
data and more closely aligned with Resch’s background in
business. His recommendations (he’s careful not to call them
solutions) range from the reasonable (galleries should have
rigorous contracts with their artists) to the jaw-droppingly
silly. In an effort to spice up the sales experience, for
example, he suggests that galleries use sparklers to denote sold
works at openings, and he makes the bold and perhaps
unintentionally self-deprecating statement that, due to the art
world’s low salaries, “the best educated people … will almost
always choose another industry to work in.” Ouch.
The realities of the primary art
market depicted by Resch’s data, however, are harder to argue
with. It turns out that the upbeat world of biennials and art
fairs and parties is in fact a cutthroat, antiquated, deeply
flawed industry hampered by an obsession with keeping up
appearances and an often misguided aversion to making money. No
wonder a gallery like Wallspace was forced to close. “Our
primary focus didn’t always correlate with financial success,”
according to Hait. “It’s unfortunate, because galleries doing
things like we were trying to do have a tough time staying in
business.”
http://en.artmediaagency.com/112875/do-art-galleries-need-to-review-their-business-model/ Do art galleries need
to review their business model? Berlin | 6
August 2015 | AMA
Magnus Resch’s book, Management
of Art Galleries, has just been published in Great Britain.
The book is based on a survey that was conducted of 8,000
galleries (with 1,300 respondents) in order to present a
study of the art galleries based in Germany, the United States
and Great Britain. The questions asked in the form covered the
galleries’ revenue, their localisation and their employees. The
author considers that galleries adopt particular strategies to
improve their profits, making them more competitive on the
market. In an article published on Artnet, he explains that the
first initiative to be taken should be “love the market and
start talking about money”. The book has stirred up controversy,
especially in terms of its angle, which was deemed rather
simplistic by a number of specialists. Art Media Agency decided
to go over the book’s key points in order to better grasp its
scope.
The work starts off with the
following question: “why are galleries losing so much money when
the art business is booming?” This observation can be supported
by a number of prestigious galleries who were forced to shut
down: Galerie Kamm, based in Berlin, closed its doors in 2004,
and the New York gallery Wallspace will put an end to its
business on 7 August 2015. The survey conducted by Magnus Resch
himself is bringing to light the economic difficulties that
galleries are facing: 55% of these galleries have stated that
their revenue was less than $200,000 per year and 30% of the
respondents are actually losing money each year. The average
profit margin of these galleries is 6.5%.
It’s true that these numbers
affirm that galleries are not all a surplus to the needs, but
it’s important to nuance this statement: the surveyed galleries
are far from homogeneous and some selection bias should be
brought to light. Not all participants in the survey are the
same size, which has an impact on their total revenue. Moreover,
the survey covers three countries in which the art market
differs: in an article he wrote for Artnet, Resch points out
that the German art market is more reluctant to talk about
economic profit, which is not the case in Anglo-Saxon countries.
Following the assessment of a low
economic profitability, Resch suggests a number of
recommendations, which he has formulated from his observations.
By studying the expenses of the galleries, Resch listed the
rent as one of the highest expenses (first in the United States
and in Germany. According to him, central premises in a major
city cannot be justified with an economic rationale: it’s the
offered objects that should attract potential buyers and not the
location of the gallery.
The second element Resch proposes
is to review the revenue sharing between the galleries and the
artists they represent. The majority of them operate on the
50/50 principle: artist and gallery equitably share revenue from
sales. Magnus Resch believes that the galleries bear significant
costs such as promotion, production and the costs associated
with insuring the works. Consequently, revenue sharing must be
returned to the galleries to make them more profitable. As such,
the split of the sale should be the gallery receiving 70% of
revenues, leaving 30% to artists. This point in particular is
quite controversial because the remuneration of artists’ work is
fundamental.
The survey also demonstrates that
there is a correlation between the galleries’ employees’ salary
and its revenue. According to Resch, a higher salary attracts
better qualified people and improves the profitability of the
gallery. In his article “Why Do So Many Art Galleries Lose
Money?”, James Tarmy emphasises that the link between the two is
not that obvious: it’s more likely that because the galleries
are profitable they can pay their employees higher salaries.
Finally, Resch focuses on the
structure of the galleries’ business: the majority of the
galleries (93 %) are specialised in contemporary art. Resch points
out that there are too many contemporary art galleries compared
to the number of buyers. He suggests that it would be smarter to
turn to other less competitive segments of the art market.
However, James Tarmy explains that contemporary art is in high
demand, and if there are that many galleries specialised in that
sector, it’s to meet the demand. Specialising in a different
sector would thus not increase the volume of sales nor the
profitability of galleries.
Resch is an entrepreneur of
German origin, specialised in art. He founded an art gallery at
the age of 20 and currently works as a Management of Art
professor at the University of St. Gallen in Switzerland.
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