How to beat the recession: cut costs, slash prices, don't lie and be creative
Older and more experienced dealers offer their younger colleagues advice on how to weather the bad times
By Cristina Ruiz. Features, Issue 204, July/August 2009
Published online: 29 July 2009
“Cut costs as quickly and as radically as you can. Speed is the most important thing. Don’t wait, don’t let it get out of control. Act immediately.” This is the advice of Karsten Schubert, the German-born London dealer, to galleries struggling to survive the economic downturn.
The process is “very painful” says Schubert because “you are dismantling what you’ve built over the last few years”, but the only way to continue operating is to “let very qualified staff go very quickly and very brutally” and, where possible, to reduce other overheads such as rent.
Schubert, one of several art world professionals to take part in a recent discussion panel in London entitled “The Art World in Recession: Practical Solutions”, said no art dealer could now rely on the support of his or her bank.
“My experience was the same in 1991, during the last big recession. The moment this started evolving, the banks weren’t there any longer. They became the enemy very quickly, they weren’t willing to help because they couldn’t see the logic of doing so. You’re very much on your own. The banks won’t be there for any of us for a very long time,” he said.
Business consultant Jeff Woolf explained that “bank managers stand to lose their jobs if loans go sour”, so they are also “pulling overdrafts”, and there is a “complete squeeze on credit”.
Keir McGuinness, a management consultant who said he had been through two recessions but believed the current one is “the worst” he’s yet seen, summed up the problems faced by most dealers. “Markets have subsided, sales have disappeared, cash flow has collapsed, which leads to debt.” This is what can stop you from functioning, he said. The reaction of many dealers, especially younger ones facing their first recession, is to “panic” and “put their head in the sand” according to art lawyer Nicholas Sharp.
Creditors and cash flow
The panic must be overcome quickly, said Sharp, and the debt must be tackled head on. Although clients are asking for advice on “how to deal” with it, Sharp conceded that “lawyers can’t be much use because, in most cases, the debt is not disputed. It’s simply money owed which can’t be paid”. The best thing is “to try to deal with problems before they arise. Go to your creditors and talk to them—set up deals where you can pay them in installments”, said Sharp.
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.
Schubert pointed out that there will be a problem in weaning collectors off higher discounts when the good times return, but he agreed that cash flow is now “paramount”.
The Art Newspaper’s Louisa Buck warned dealers against courting “a whole new client base” in the current climate. “Galleries have to work hard to nurture their existing clients,” she said. She told the story of one gallery, surprised by the success of a recent show and so pleased to have attracted new buyers, that “they neglected to give their loyal collectors the options on the art they’d wanted. The collectors were royally fed up,” said Buck. Do not focus on “the short term” even if “it means someone new and exciting has to get to the back of the queue”.
Woolf concurred, explaining that for most businesses: “It is about six to ten times more expensive to develop new clients than it is to retain existing ones.”
“Maintain your clients through regular contact,” but it is important not to appear desperate, said Woolf. “Too much” contact is “annoying”. Handling existing relationships “requires innovation”, he said. Galleries need to ask themselves: “What is it our clients want? If they’re not going to be spending money, how do we keep them in touch with what’s going on at the gallery?”
It is important to “be realistic” when talking to collectors, said Cristea.
“When you talk to them—don’t pretend. If somebody complains: ‘That work I bought from you three years ago, there was one sold at auction the other day for half the price’…You say: ‘Everybody’s affected by the recession, it’s a world-wide recession, why shouldn’t we be?’ If people ring me up and ask: ‘Will you buy this work back?’ I say: ‘Hang on, what do you do for a living? Would you buy that house back for the same price you sold it for? No, let’s get real here.’ And people understand that.”
“If you pretend all the time, you go bust—if you’re too stuck up to reduce prices, fine. Better go do something else,” said Cristea.
Not so long ago, some artists were “insisting on exhibition space which needed to be [several] thousand square feet” or they’d refuse to show their work, noted Keir McGuinness. “Now, it’s very different.”
“This is not the time for huge production values and a whole industry labouring to fabricate your work,” said Buck. “It’s a time to be more nimble, a time to be more inventive.”
“I’m surprised how quickly most artists have adjusted to this. Their primary concern, if they’re really good, is they want to make their work. Artists will always find ways of making it happen,” said Schubert. “We have just been through four or five really silly years when anything was possible and any demand could be made and met. That’s over and the good artists have adjusted.”
Nicholas Sharp advised galleries that this is a “good time” to do some housekeeping and to standardise relationships with artists by binding them to contracts, but Cristea argued that this was a “dangerous” move.
“This is the last moment when you ring up an artist and say: ‘We’re going to [standardise your] terms of contract’, because that will immediately indicate to him or her that you’re going up the [creek] without a [paddle],” said Cristea.
“Relationships with artists are based on trust. You can have hundreds of pages of contract with an artist and it’s worth f*** all if the trust is gone. Do not ring up artists and make contracts now. Do it when [the times] are good and they’re getting loads of money from you and they think: ‘I’d better stick with this guy’.”
“If you sit in the gallery feeling sorry for yourself, you’ve had it,” said Cristea. “The most important thing is to see the new reality as a creative challenge. The moment you view it that way you’ll almost certainly get through it. You can get far more satisfaction out of doing reasonably well now than you could get from doing well two years ago because anyone could have done incredibly well two years ago. It was like falling off a log.”
The downturn would also be good for art, said Schubert. “It was at the height of the last recession that the YBA movement was born. Against the current backdrop, a lot of really exciting things will happen again. The last four or five years it has been about the status quo. Now it’s all open. It’s very exciting.”
The panel was organised by the art insurers Hallett Independent, www.hallettindependent.com
What dealers say...
"Do not trust or rely on the banks as they will be the first to bankrupt small companies—try not to have too much debt as cash will be king. Try only to take measured risks and not to do the things for status you may previously have done"
David Juda, Annely Juda Fine Art
"Believe in your artists. Stick close to them, get them to stick close to you and make sure that you are only working with artists you really want to work with. While artists are the last people to really understand what is going on right now, they need to get their heads around [the current situation] and accept that, where appropriate, if they want to stay in the game they need to go back to the price level they were at three, four, or five years ago"
Nicholas Logsdail, Lisson Gallery
"Close the gallery and find third party spaces when you need to do shows. Owning a gallery and taking on the overheads now is not conducive to doing business. All Visual Arts has been designed to operate in recessionary times. The money that we have we spend on producing and purchasing art—we don’t spend it on having a big fancy gallery that would prohibit us from working with young artists and that would create pressure in terms of raising money for the overheads every month"
Joe La Placa, director, All Visual Arts (launched March 2008)
"Do not be put off at starting up in a recession, as you will learn much more prudence this way—I started in 1969/70. When the next recession comes, and it will, make sure you are in a position not to have to sell while being in a position to buy. After World War II, the Rosenberg gallery in New York held an extraordinary exhibition of Cubists: Picassos and Braques. Nothing sold. Mr and Mrs Rosenberg took the works upstairs to their flat. Then, in the 80s they brought them down again and people marvelled—‘Where did you get these fantastic works?’ Every one of them sold. Remember the old maxim—a dealer earns a living by the art he sells, but a fortune by the art he keeps"
Thomas Gibson, Thomas Gibson Fine Art
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