NEW ART - THE PRIMARY MARKET
The primary sector of the art market is where newly created works are generally consigned by artists to a gallery or dealer who exhibits them. The gallery acts as an agent, and is remunerated through a commission on sales. It generally bears the cost of the exhibition and sets the prices, taking into account the size and medium of the works and the reputation of the artist. As it is uncommon for artist’s to have a ‘sell out’ show, works are generally held in the stock room and are available for sale after the exhibition while the dealer continues to attract customers, arrange commissions, enter works in art prizes, create publicity, and publish material promoting the artist. Having this sort of association with the dealer allows the artist to concentrate on their art production and this specialisation is ideally of benefit to both parties. Not all artists generate enough income to compensate dealers for the costs of conducting exhibitions but galleries generally cross subsidise less successful artists with income derived from those whose works underpin the gallery’s financial viability. Formal contracts are far more common amongst non-Indigenous artists and their dealers than has been the case with Aboriginal artists. Even community art centres have argued strongly against exclusive contracts with artists whose lack of literacy and numeracy skills place them at a disadvantage in negotiations unless an educated local language speaker is present to assist in the process. Nevertheless those galleries that have become signatories to the newly introduced Art Industry Code of Conduct have agreed to use standard contracts when working directly with Indigenous artists in order to demonstrate transparency and equity in their dealings.
Contracts are only really useful if they describe the role and responsibilities of each party toward each other. Most agents, whether community based or independent, have been extremely reluctant to subject Indigenous artists to punitive clauses that could lead to litigation, given the constant need for money to support families living in remote communities. However whether under contract to a dealer or not, successful artists, both black and white, are liable to receive offers to move to other galleries and the majority of dealer rivalry arises from often emotive accusations of ‘poaching’. Most galleries eventually jettison unsuccessful artists and these eventually drop out of the artist-gallery system, while the galleries take on a mix of new younger, and already established, artists that they are able to win over from others.
As eminent economist Dr. Jon Stanton has observed,
The abiding characteristic of the primary market is the general level of excess demand; there are more paintings for sale than there are willing purchasers. There are more artists than the number that can be represented by galleries; galleries exhibit more paintings than anyone is willing to buy, and galleries operate at lower than normal profit levels.’
The final point here is worth considering. Commercial galleries generally operate on between 30 and 40% commission for primary market sales. This figure is considerably lower than for many products sold through retail stores, especially those that are vertically integrated. (That is they manufacture their own products, mark them up to wholesale and then mark them up again to retail. This is how they can offer up to 80% off sales at the end of each season.)
Due to their low commission structure and an oversupply of art, there is a high turnover of artists and galleries. While established galleries seek ‘marquee’ artists who can ensure their financial viability and underpin their elite reputation, the vast majority of galleries and dealers struggle to win the hearts and pockets of collectors, who are drawn from a variety of walks of life. While they have an interest in visual art, most of these ‘collectors’ are not wealthy and will visit galleries many times to seek advice and develop their passion. Only very occasionally do they ever actually purchase an artwork. Those galleries that screen artists, and thereby reduce their client’s search and transaction costs, immeasurably aid collectors, in particular those who seek new and innovative works of art. Galleries differ and the styles of work and particular artists they show. They attract collectors who share their taste and value their aesthetic ‘eye’ and critical judgement, as well as their business acumen.
Today however, there is a new competitor on the scene that is challenging the conventional ‘bricks and mortar’ gallery system. Online sales over the internet. Make no mistake. This can be a game changer, and an enormous boon to art buyers. But it is a trap for the unwary and foolhardy.
The rules of engagement still apply whether you buy directly off the wall of an art gallery, or over the web.
 Dr. Jon Stanford FSIA, Submission to the Department of Communications, Information Technology and the Arts, Discussion of the Proposed Resale Royalty Arrangement’2004
OLD ART - THE SECONDARY MARKET
An artwork, having been originally purchased in the primary market, may remain in a private or public collection for anything from a brief period to a lifetime. It may remain in a single family for generations. Regardless, a time will come when it will, once more, be offered for sale through a dealer an auction house, or online. There are in fact many dealers who specialise in the work of deceased or highly collectable artists whose works are sourced from existing collections. Premature offerings in the secondary market can easily destroy a living artist’s primary market performance if seen to be unsuccessful, or the price paid falls below current market expectations. For this reason artist’s galleries and agents occasionally seek to manipulate the secondary sales in order to ensure that works created by artists they represent are ‘supported’. They may even introduce an artist’s work themselves in order to establish a secondary market profile as part of a strategy to underpin, or even boost, their primary market standing.
In Australia there are a number of successful secondary market dealers, many of whom, make no bones about the fact that they purchase a significant proportion of their stock at auction. Denis Savill, Phillip Bacon, Rob Gould and a number of others who are highly visible, are joined by a large number of independent dealers and art consultants who place works into, and purchase works from, the major auction houses. A number of smaller auction houses, purchase from the larger ones as it is more cost effective to pay the buyers premium on the open market than employing a permanent team of art specialists to find the works for them. These smaller auction houses will stage sales in regional areas beyond the reach and focus of the major players. In recent years most art auction houses have developed online facilities.
It is now possible to bid online in real time as the auction is taking place halfway around the world. New online art auction platforms include those that that operate exclusively online, those that operate live as well as digitally, and aggregators that provide access to dozens of auctions with online bidding.
In auctions it is commonly said that 80% of the value is in 20% of the works. Most auction houses make their money by charging both the buyer and the seller. They charge the buyer a premium, currently between 20% and 25% on top of their winning bid (the hammer price of artwork). Depending on the rarity and desirability of an artwork auction houses are generally prepared to lower their seller’s (vendor’s) commission, which can vary from as much as 20% on works worth less than $5,000 to 5% on works worth more than $100,000. In the case of some extremely rare and highly desirable pieces, auction houses will even consign them at 0%. However, while the sellers commission is always a matter of negotiation, the 20-25% ‘buyer’s premium’ is inviolable! Auction houses would never sacrifice a penny of it, as it represents the greater part of their income.
An Australian ‘Tier One’ auction house will offer between 100 and 250 individual works of art worth a total of anything from $500,000 to $10 million in one single evening. In an attempt to attract fashionable and well-healed audiences, and to achieve between 70 and 90% clearance (success) rates, the major auction houses produce full colour catalogues with the highest production values. They have just one shot at selling, after months of hard work. However when run professionally this is, without doubt, the most highly successful way of selling quality art.
In the words of the mercurial Rod Menzies, proprietor of Menzies Art Brands.
There’s nothing as successful in the world of sales as Going…Going… Gone!
Buying and selling through auctions is a subject that is taken up in far greater detail later in this book.
BUYING PRIMARY AND SECONDARY ARTWORKS ONLINE
You are moving into a new apartment may want a work of art to go above your new sofa, or bed. You know the size and colours that will work for you and have an idea of the genre you are attracted to (modern, abstract, landscape, still life, expressionist, avant-garde). You also know how much you are prepared to spend. Art is a luxury product and there are artworks to meet every budget. You probably intend to buy only one or two paintings, but you are interested in art and could go on to buy a dozen over the next decade or two. Perhaps you may be one of those rare individuals who are destined to become a ‘collector’. Only time will tell. Perhaps you live in the countryside, outside of the city with its many commercial galleries. You may however be surrounded by them but scared of appearing ignorant, or asking for prices from staff who appear too busy to stop what they are doing. There are so many galleries and so many different types of art…it could take forever to find exactly what you want.
But wait! You feel completely comfortable buying your clothes, your CD’s and books over the internet. Why not that painting you are looking for?
Did you know that online sales are the single most rapidly expanding sector of the fine art market? According to a recent survey, 71% of recipients had bought art online sight unseen and 89% of galleries regularly sell artworks to clients on the basis of a digital image only.
[The survey included 506 international art buyers (with young buyers comprising 42% of the overall sample), 130 established international art collectors, and 58 international art galleries].
While 56% said that they still preferred actually going to galleries they admitted that the art world felt exclusive and inaccessible. As a result more than one third of these same respondents believed that buying art online was less intimidating than buying from a physical gallery or auction house.
Of the online art buyers surveyed, 75% said that the main advantage of buying online was the fact that they could find the artwork they wanted so much more easily than through trawling galleries.
If what I have reported above makes sense to you here’s what you need to do. Find an online environment in which you can discover, browse, learn about and eventually buy art. You need an online gallery with an established reputation you can trust or, even better, an online platform that enables you to access the stockrooms of a range of established, reputable and trusted galleries. Galleries that will provide detailed information such as condition reports and certificates of authenticity to accompany your purchase.
In 2014, the largest share of buyers (45%) had bought in the $2,000 to $20,000 range with 10% having spent more than $100,000 on a single painting online. (Imagine that!!)
The findings show that as many as 45% of repeat online buyers are willing to spend in the $10,000 and above category on fine art, compared to 19% of first-time buyers. This can only mean that the confidence to purchase higher price works is likely to increase and that the market could grow rapidly in the coming years, as technological and logistical barriers break down, and buyers’ confidence in online buying increases.
 conducted by ArtTactic and Hiscox Insurance. Hiscox Group Report