Christina Ruiz writes a guide for gallery owners on how to beat the recession in The Art Newspaper. Among many other pieces of wise counsel, Ruiz produces thsi:
What matters more than profit at the moment is cash flow, stressed the veteran London dealer Alan Cristea, who said he had weathered four recessions. Keep the money coming in by selling work even if you have to do this at a large discount. “Without cash flow, you can’t do anything,” he said.
Barron’s this weekend does a little work on the discount issue and raises an important counter-argument. (You’ll have to be a Barron’s subscriber to read the whole story but here’s the relevant economic argument.) Be aware, discounts may not help move art, here’s why:
The basic problem is clear: The worldwide economic slump has sapped demand for works of art across the board — paintings, sculptures and more. What has yet to be seen is whether the price reductions will do much to improve the situation for galleries. Simply put, price-cutting may be more effective for selling homes and autos than it is for selling art.
Some experts fear it could even hurt demand. “Price is a signal of quality and your commitment that this is good art,” says Gerald Friedman, an economics professor at the University of Massachusetts/Amherst. “If you cut the price, it sends a signal that this is not a desirable product.”
For price-cutting to work, a product must have what economists call elasticity of demand — that is, demand that shrinks or expands with higher or lower prices. However, “demand for art is probably not elastic,” says John Silvia, chief economist for Wachovia. He notes that lowering the price for less-expensive consumer items “brings people into the store, but if you have a product that is fairly unique or distinct, like art or jewelry, the answer is no, you don’t lower the price.” Price-cutting, he says, could “create a doubt in the minds of future buyers about any work of art you sell. They wonder, ‘Am I being cheated now?’ ”
Yet as the recession persists, galleries must try to lift sales, and discounting strikes some as the best hope. Just look at what has been happening at New York’s Tibor de Nagy Gallery. Seven or eight months ago, the gallery routinely offered 10% price breaks to some long-term customers, or to people who bought more than one piece of art at once, says gallery director Eric Brown. Now, he says, the standard is a 20% discount, “and, in some circumstances, we have gone to 25% to 30%.”
Even that doesn’t seem to have sparked much buying.
The Art of the Steal (Barron’s)
How to Beat the Recession: Cut Costs, Slash Prices, Don’t Lie and Be Creative (The Art Newspaper)
